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Master Circular on Show Cause Notice, Adjudication and Recovery –reg.

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..... as to ensure clarity and ease of reference. This master circular on the subject of show cause notices, adjudication proceedings and recovery is an effort to compile relevant legal and statutory provisions, circulars of the past and to rescind circulars which have lost relevance. Annexure-I to the circular provides list of the eighty nine circulars which stand rescinded. Three circulars listed in Annexure-II have not been rescinded as they contain comprehensive instructions on the subject they address. 2. The master circular is divided into four parts. Part I deals with Show Cause Notice related issues, Part II deals with issues related to Adjudication proceedings, Part III deals with closure of proceedings and recovery of duty and Part IV deals with miscellaneous issues. 3. The provisions of the Master Circular shall have overriding effect on the CBEC‟s Excise Manual of Supplementary Instructions to the extent they are in conflict. 4. Difficulty, if any, in the implementation of this Circular may be brought to the notice of the Board. Hindi version will follow. Shankar Prasad Sarma Under Secretary to the Government of India MASTER CIRCULAR .....

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..... 16.1 25 Adjudication of SOFs/LAR raised by CERA 17.1 to 17.4 Part III 26 Confirmed demands 18 27 Recovery 19 to 22.4 Part-IV 28 Service of decisions, orders, summons, etc. 23 29 De novo adjudication 24 30 No SCN on voluntary payment 25 31 Refund of pre-deposit 26 Part I : Show Cause Notice 1.1 Demand : Under the provisions of the Central Excise Act, 1944 , demand can be issued when any duty of Central Excise has not been levied or paid or has been short-levied or shortpaid or where any duty has been erroneously refunded, for any reason. The demand of duty may also arise on account of duty collected without the authority of levy or in excess of the levy but not .....

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..... ceeding started should be discussed in the SCN. For example, a SCN may be based on audit of accounts by the internal audit or detailed scrutiny of return by the Range office or intelligence by anti-evasion etc. In this part, the gist of audit objections/observations/ intelligence and a brief modus operandi of duty evasion adopted by the alleged offender may be discussed. Further, the details of verification/investigation conducted/ carried out and the summary of the verification may also be discussed in this part. 2.4 Legal framework: The authority issuing the SCN should clearly lay down the legal provisions in respect of which the person shall be put to notice. While specifying the provisions, care should be taken to be very accurate in listing all the provisions and the law in respect of which the contraventions are to be alleged in the SCN. 2.5 Factual statement and appreciation of evidence: In this part of SCN, the facts relating to act of omission and commission pertinent to the initiation of the proceedings against the noticee need to be stated in a most objective and precise manner. All evidences in form of documents, statements and material evidence resumed durin .....

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..... est is chargeable on the delayed payment of duty under the provisions of Section 11AA of CEA, 1944 or Rule 8 of the Central Excise Rules, 2002 or mutatis mutandis for CENVAT Credit taken or/and utilized wrongly or for recovery of refund or on amount collected in excess of the duty payable on any excisable goods from the buyer of the goods under Section 11DD . There may not be need for any explicit mention of the interest liability in the show cause notice since the legal provisions in this regard are explicit and contained in Section 11A(14) . However, to make the SCN a self-contained notice of charges, it may still be desirable to mention the liability of interest in the SCN. 2.10 Statement of charges: In this part, the SCN list of all charges against the noticees need to be summarized and the notice should be charged as to why action as provided in law, should not be taken against them. 2.11 Authority to adjudicate: A SCN must state the authority to whom the reply to the show cause notice is required to be answered. In case of seizure of goods, the issue of show cause notice is mandatory before any order for confiscation of goods is passed. Where there is a ch .....

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..... gain qualified by the immediately following words with intent to evade payment of duty . It is, therefore, not correct to say that there can be a suppression or mis-statement of fact, which is not wilful and yet constitutes a permissible ground for the purpose of the proviso to Section 11A. Misstatement or suppression of fact must be wilful. 3.4 Extended period in disputed areas of interpretation: There are cases where either no duty was being levied or there was a short levy on any excisable goods on the belief that they were not excisable or were chargeable to lower rate of duty, as the case may be. Both trade and field formations of revenue may have operated under such understanding. Thus, the general practice of assessment can be said to be non-payment of duty or payment at lower rate, as the case may be. In such situations, Board may issue circular clarifying that the general practice of assessment was erroneous and instructing field formations to correct the practice of assessment. Consequent upon such circular, issue of demand notice for extended period of time would be incorrect as it cannot be said that the assessee was intentionally not paying the duty. 3.5 .....

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..... d following the due process of demand and adjudication. In such cases, the period of limitation as prescribed in Section 11A applies for demand of interest. Section 11A(15) may be referred in this regard. 4.1 Demand due to Departmental or CERA (CAG Audit): Show Cause Notice may be required to be issued due to audit objection arising out of either internal audit or CERA conducted by the office of CAG. The decision to issue Show Cause Notice due to internal audit rests with the Audit Commissioner. As far as CERA audit is concerned, a detailed circular has been issued vide Circular No. 1023/11/2016-CX dated 8.4.16 . Important directions in the circular in this regard are as follows: 4.2 Where the department has agreed with the audit objection on merits constitute a large proportion of the audit objections. In such situations, Show Cause Notices should be issued immediately and where practicable view of the assessee should be obtained before issue of Show Cause Notice. Such cases should not be transferred to the Call-Book and should be adjudicated forthwith and revenue realized in cases of confirmed demand at the earliest. 4.3 Where the department has not agree .....

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..... to be an invalid SCN. 7.0 Issue of unjust enrichment to be raised in SCN itself : In case of consequential refund of excess duty paid, the applicant should be granted a refund of such claims as is found to be in conformity with the order of the appellate authority. The question of unjust enrichment may be examined independently, if not covered by the appellate order. Where a refund application is prima-facie found to be liable for rejection after such examination, a notice should be served on the applicant stating the ground on which the refund application is liable to be rejected. In cases where refund is admissible on merits but is liable to be paid to the Consumer Welfare Fund on grounds of unjust enrichment, the assessee will be adversely affected by the decision and therefore, a notice should be served on the applicant before any such decision is taken. 8. Changing a long standing practice of assessment: A long standing practice of assessment which is widely prevalent across the country should not be suddenly changed by issuing show cause notice demanding duty. Such issues should be referred to the Board in a comprehensive manner with inputs obtained from the ot .....

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..... respect of those noticees who have made application in the Settlement Commission, and whose case has been admitted by Settlement Commission, Cases shall be taken out of the Call-Book after Settlement Order has been issued or where the case has been reverted back for adjudication. 9.4 Intimation of Call Book cases to noticee: A formal communication should be issued to the noticee, where the case has been transferred to the call book. Part II : Adjudication of Show Cause Notice 10. Adjudication: Officers of Central Excise have been vested with powers under Section 33A of Central Excise Act, 1944 to adjudicate the Show cause notice issued to the noticees and answerable to the officers. They, in their capacity as adjudicating officers act as quasijudicial officers. Further as per Section 2(a) Adjudicating authority means any authority competent to pass any order or decision under this Act, but does not include the Central Board of Excise and Customs constituted under the Central Boards of Revenue Act, 1963 (54 of 1963), Commissioner of Central Excise (Appeals) or Appellate Tribunal. 11.1 Monetary limits: Board has revised monetary limits for adjudicatio .....

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..... tary limit ii. In case different show cause notices have been issued on the same issue answerable to different adjudicating authorities, Show Cause Notices involving the same issue shall be adjudicated by the adjudicating authority competent to decide the case involving the highest amount of duty. 11.3 Where differential duty/demand of duty is paid without interest, in such cases, Show Cause Notices demanding interest and levy of penalty should be issued. In the Show Cause Notice, the reference of duty already paid should also be mentioned. 11.4 As regards adjudication of the notices issued for recovery of interest alone, it is clarified that these cases should be decided by the proper officer based on the monetary limit fixed for the duty amount involved and not on the basis of the amount of interest. Therefore, the amount of duty on which interest has not been paid, should be the monetary criterion for deciding the authority to decide such cases. 11.5 In case different show cause notices have been issued on the same issue to same noticee(s) answerable to different adjudicating authorities, Show Cause Notices involving the same issue shall be adjudicated by the .....

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..... e adjudicated by the ADG (Adjudication). However in case of large pendency of cases or there being a vacancy in the rank of ADG (Adjudication), Director General, CEI may assign cases involving duty of more than ₹ 5 crore to the field Commissioners following clauses (iv) and (v) of the guidelines. (ii) Director General, CEI may issue general orders assigning the show cause notices involving duty of more than ₹ 5 crore issued by the specified Zonal Units and/or the DGCEI Headquarters to a particular ADG (Adjudication). (ii) Where ADG (Adjudication) is the adjudicating authority in one of the cases involving identical issue or common evidences, the Director General, CEI may assign all such cases to that ADG (Adjudication). (iv) Cases to be adjudicated by the executive Commissioner, when pertaining to jurisdiction of one executive Commissioner of Central Excise, shall be adjudicated by the said executive Commissioner of the Central Excise. (v) Cases to be adjudicated by the executive Commissioners, when pertaining to jurisdiction of multiple Commissionerates, shall be adjudicated by the Commissioner in whose jurisdiction, the noticee from whom the highes .....

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..... ttlement Commission, the matter needs to be transferred to call book till the matter is decided by Settlement Commission. In case matter is not finally accepted for settlement by the settlement commission, the show cause notice should be adjudicated in normal manner, in case the Settlement Commission, settles the matter, the show cause notice should be taken out of call book and shown as disposed off. 14.2 Filing of Written submissions : Show Cause Notice generally provides a time limit of thirty days for submission of written reply, however the time limit may be extended by the adjudicating authority on written request of the assessee. Where the assessee fails to submit a written reply, the adjudicating authority may issue a letter requesting the noticee to submit reply to the SCN. 14.3 Personal hearing: After having given a fair opportunity to the noticee for replying to the show cause notice, the adjudicating authority may proceed to fix a date and time for personal hearing in the case and request the assessee to appear before him for a personal hearing by himself or through an authorised representative. At least three opportunities of personal hearing should be give .....

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..... atement is relied upon in the adjudication proceedings, it would be required to be established though the process of cross-examination, if the noticee makes a request for cross-examination of the person whose statement is relied upon in the SCN. During investigation, a statement can be fortified by collection of corroborative evidence so that the corroborative evidence support the case of the department, in cases where cross-examination is not feasible or the statement is retracted during adjudication proceedings. It may be noted retracted statement may also be relied upon under given circumstances. Frivolous request for cross-examination should not be entertained such as request to cross examine officers of CERA. 14.10 Issue and Communication of order: In all cases where personal hearing has been concluded, it is necessary to communicate the decision as expeditiously as possible as but not later than one month in any case, barring in exceptional circumstances to be recorded in the file. The order is required to be communicated to the assessee in terms of provisions of Section 37C of the CEA, 1944. 15. Corrigendum to an adjudication order: A corrigendum to an adjud .....

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..... circulars of the Board, if any. In this regard the following extract from the judgment in the matter of Simplex Infrastructure Ltd vs Commissioner of Service Tax of the Hon‟ble Kolkata High Court dated 07.04.2016 at para 74 may be followed in letter and spirit while discharging one‟s role as an Adjudicating authority It is well settled that a quasi-judicial authority must act judiciously and not at the dictates of some other authority. It is quite evident that the Commissioner issued the impugned showcause notice at the instance of CERA without any independent application of mind, and thereby, abdicated his powers and duty, which is not permissible in law‟. Accordingly, it is directed that the audit objection by CERA should be independently examined and where necessary, Show cause Notice should be issued. It is expected that the SCN is a consequence of independent examination carried out on receipt of CERA/CRA objection. Such independent findings should be incorporated in the show cause notice as well as in the adjudication order. 17.4 Where an issue was under audit objection and has been subsequently either judicially settled, by say judgment of H .....

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..... effect, the Central Excise dues shall have first charge, after the dues, if any, under the provisions of Companies Act, Recovery of Debt due to Bank and Financial Institution Act, 1993 and Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and the Insolvency and Bankruptcy Code, 2016, have been recovered. 20.1 Recovery during pendency before BIFR/IFCL/OL/DRT/Insolvency and Bankruptcy Code, 2016: When the cases are pending before BIFR/IFCL/OL/ appropriate authority under Insolvency and Bankruptcy Code, 2016 then in such cases recovery measures should not be resorted. In such cases public counsel should be advised to file affidavits for first charge under Section 11E of Central Excise Act, 1944 informing the quantum of confirmed demand to BIFR/IFCL/OL/DRT/Insolvency and Bankruptcy Code Authorities. 20.2 Recovery during pendency of litigation: Board has issued two circulars on the subject vide Circular no 984/08/2014- CX dated 16.9.2014 and Circular no 1035/23/2016-CX dated 4.7.2016. (i) Sub-Section (iii) of Section 35F of the Central Excise Act, 1944 and Section 129E of the Customs Act, 1962 stipulate .....

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..... ty short paid or not paid which is self-assessed and declared in the periodic returns. The conjoined reading of these two provisions provide that where the liability of duty is admitted but not paid by the assessee, adjudication proceedings envisaged under Section 11A are not required to be undertaken. Such self-admitted liability would be covered under the expression duty and any other sums of any kind payable to the Central Government used in Section 11A notice for recovery of admitted liability may be served on the assessee under Section 11 and when such dues are not paid within a reasonable time, recovery proceedings may be initiated. 22.0 Recovery in instalments: Board has issued Circular No. 996/3/2015-CX dated the 28th Feb., 2015 to provide the facility of payment of confirmed demand in installments. 22.1 It has been decided by the Board to allow recovery of arrears of taxes, interest and penalty in installments. The power to allow such payment in monthly installments shall be discretionary and shall be exercised by the Commissioners for granting sanction to pay arrears in installments upto a maximum of 24 monthly installments and by the Chief Commissione .....

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..... ng it by registered post with acknowledgment due or as a fallback, by affixing a copy thereof to some conspicuous part of the factory or warehouse or other place of business or usual place of residence of the person or as a further fallback, by affixing on the notice board of the officer. For further details, the Section may be referred. 24. De novo or Adjudication remanded by appellate authority: In cases of de novo adjudication in pursuance of the order of Appellate Authority, such cases should be decided by the adjudicating authority of the same rank who had passed the order which was in appeal before the Appellate authority, notwithstanding the enhancement of the power of adjudication of the officers. On receipt of the order for de novo adjudication from the Appellate authority, such case should be shown as pending in the list of cases pending adjudication of such adjudicating authority till it is decided by him. Close monitoring of such pending de-novo cases should be done to ensure that these cases are adjudicated well within the time limit, if any, laid down by the Appellate authority. 25. No SCN on voluntary payment: In any case of short payment or non-payment of .....

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..... 207/47/85-CX.6, dated 12.8.1986 4 17/87, dated 18.3.1987 5 267/104/87, dated 15.12.1987 6 27/88-CX.6, dated 7.4.1988 7 42/88-CX.6, dated 24.5.1988 8 48/88-CX.6, dated 10.6.1988 9 50/88-CX.6, dated 17.6.1988, 10 67/17/88-CX.2,dated 18.8.1988 11 76/88-CX.6, dated 2.11.1988 12 79/88-CX.6, dated 15.11.1988 13 66/88,dated 20.12.1988 14 2/89, dated 9.1.1989 15 29/89,dated 2.5.1989 16 50/89, dated 29.8.1989 17 53/90-CX.3, dated 6.9.90 18 1/90-AU dated19.3.90 19 18/90-CX.8, dated 28.3.1990 20 53/90, dated 26.9.1990 21 .....

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..... /30/2000-CX, dated 30.5.2000 56 540/36/2000-CX., dated 8.8.2000 57 552/48/2000-CX, dated 4.10.2000 58 555/51/2000-CX, dated 19.10.2000 59 588/25/2001-CX,dated 19.9.2001 60 592/29/2001-CX, dated 19.10.2001 61 606/43/2001-CX, dated 4.12.2001 62 674/65/2002-CX dated1.11.2002 62 275/37/2K-CX.8A dated2.1.2002 64 655/46/2002-CX dated26.6.2002 65 712/28/2003-CX., dated 5-5-2003 66 718/34/2003-CX, dated 23.5.2003 67 723/39/2003-CX, dated 10.6.2003 68 744/60/2003-CX, dated 11.9.2003 69 752/68/2003-CX, dated 1.10.2003 70 762/78/2003-CX. dated 11.11.2003 71 765/81/2003-CX, dated 10.12.2003 .....

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