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Master Circular on Show Cause Notice Adjudication and Recovery reg.

Central Excise - 1053/02/2017-CX - Dated:- 10-3-2017 - Circular No. 1053/02/2017-CX F.No. 96/1/2017-CX.I Government of India Ministry of Finance Department of Revenue Central Board of Excise and Customs Dated the 10th March, 2017 To, The Principal Chief Commissioner/Chief Commissioners of Central Excise (All) The Principal Chief Commissioner/Chief Commissioners of Central Excise and Service Tax (All) The Principal Chief Commissioner/Chief Commissioners of Service Tax (All) The Principal Commissi .....

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circulars from time to time so 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 Annexure-I to the circular provides list of the eighty nine circulars which stand rescinded. Three circulars listed in Annexure-II have not been rescinded as they contain comprehensive ins .....

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f 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 Index: S.No. Subject Para No. Part-I 1 Demand 1.1 -1.2 2 Show Cause notice (SCN) 2.1 3 Structure of SCN 2.2-2.10 4 Authority to adjudicate 2.11 5 Limitation to demand duty 3.1 6 Extended period 3.2 to 3.7 7 Applicability of limitation in demanding interest 3.8 8 Demand due to Departmental Audit or CERA .....

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es of adjudication 14.1 to 14.10 22 Corrigendum to an adjudication order 15.0 23 Transfer of adjudicating authority 16.0 24 Signing of the order 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 .....

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dicating therein charges of violations of provision of law requiring the assessee to explain as to why the duty not levied/not paid or short levied/ short paid should not be recovered from the noticee with interest and penalty, if applicable. Similarly, a show cause notice can also be issued for recovery of refund erroneously paid by the Government to the taxpayer. 2.1 Show Cause notice (SCN): Show Cause Notice (SCN) is the starting point of any legal proceedings against the party. It lays down .....

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the charges alleged in the SCN. The issuance of show cause notice is a mandatory requirement according to the principles of natural justice which are commonly known as audi alteram partem which means that no one should be condemned unheard. 2.2 Structure of SCN: A SCN should ideally comprise of the following parts, though it may vary from case to case: a) Introduction of the case b). Legal frame work c). Factual statement and appreciation of evidences d). Discussion, facts and legal frame work, .....

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should be stated separately irrespective of the fact that, the persons are closely related to each other. A very brief background as to how the present proceeding 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 allege .....

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n 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 during the course of enquiry /investigation should be organised serially in a manner so as to establish the charges against the noticee. While discussing the fac .....

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on on Limitation: As per the provisions of Central Excise Act, 1944, the duty which has not been levied or paid or has been short levied or short paid or erroneously refunded can be demanded only within normal period i.e. within two years from the relevant date. However, in specific case, where any duty of excise has been not paid or short paid or erroneously refunded, by reason of fraud or collusion or any wilful mis-statement or suppression of facts or contravention of any of the provisions of .....

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possible to quantify the short levy at the time of issue of SCN, the SCN would not be considered as invalid. It would still be desirable that the principles and manner of computing the amounts due from the noticee are clearly laid down in this part of the SCN. In the case of Gwalior Rayon Mfg. (Wvg.) Co. Vs. UOI, 1982 (010) ELT 0844 (MP), the Madhya Pradesh High Court at Jabalpur affirms the same position that merely because necessary particulars have not been stated in the show cause notice, i .....

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ayable 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 b .....

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ensure that the noticees have a fair opportunity to present their case to the appropriate adjudicating authority. Corrigendum to SCN is issued due to change in jurisdiction, monetary limit, re assignment, etc. The authority who issued the SCN has to issue the corrigendum and then transfer the file to the new adjudicating authority. 3.1 Limitation to demand duty: A show cause notice demanding duty not paid or short paid or erroneous refund can be issued by the Central Excise Officer normally with .....

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uty can be issued within five years from the relevant date. 3.2 Ingredients for extended period: Extended period can be invoked only when there are ingredients necessary to justify the demand for the extended period in a case leading to short payment or non-payment of tax. The onus of establishing that these ingredients are present in a given case is on revenue and these ingredients need to be clearly brought out in the Show Cause Notice alongwith evidence thereof. The active element of intent t .....

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on of facts are concerned, they are clearly qualified by the word wilful preceding the words mis-statement or suppression of facts which means with intent to evade duty. The next set of words contravention of any of the provisions of this Act or Rules are again 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 groun .....

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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 On the other hand, there can be Board circulars which onl .....

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xtended period. 3.6 Power to invoke extended period is conditional: Power to issue notice for extended period is restricted by presence of active ingredients which indicate an intent to evade duty as explained above. Indiscriminate use of such restricted powers leads to fruitless adjudications, appeals and reviews, inflates the figures of outstanding demands and above all causes unnecessary harassment of the assessees. Therefore, before invoking extended period, it must be ensured that the neces .....

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ded period is quite logical whereas in cases of wilful mis-statement regarding the clearances made under appropriate invoice and recorded in the periodic returns, second SCN invoking extended period would be difficult to sustain as the department comes in possession of all the facts after the time of first SCN. Therefore, as a matter of abundant precaution, it is desirable that after the first SCN invoking extended period, subsequent SCNs should be issued within the normal period of limitation. .....

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e 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 .....

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th the audit objection on merits no show cause notice should be issued in cases and should be replied giving detailed reasoning and caselaws on the subject. For further details of the procedure to reply to CERA, the said circular may be referred. 4.4 Where a contested audit objection has become DAP and on examination it is found by the Commissioner (PAC) or Joint Secretary (Customs) in CBEC that the objection should have been admitted, they may give necessary directions to the field formations t .....

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ections are contained in the circular dated 8.4.2016(ibid) and have been reproduced from para 18.1 to 18.4 of this circular for ease of reference. 5.0 Consultation with the noticee before issue of Show Cause Notice: Board has made pre show cause notice consultation by the Principal Commissioner/ Commissioner prior to issue of show cause notice in cases involving demands of duty above ₹ 50 lakhs (except for preventive/ offence related SCN's) mandatory vide instruction issued from F No. .....

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by the officers of higher rank. Details of authority empowered to adjudicate the cases as per demand of duty are discussed in paragraph no. 11. Though, issue of SCN by an officer of the rank empowered to adjudicate the case is the accepted norm, a SCN issued by a Central Excise officer of rank other than the one prescribed in the circular would not ipso facto 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 a .....

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s 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 comprehe .....

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assessee the requirement of written SCN may be waived and the charges alongwith duty payable may be explained orally. This clarification was given in the context of closure of cases on payment of duty, interest and penalty. However, where the issue is likely to be litigated at a later date by the assessee, it would be appropriate that a written SCN be issued. This would hold true in particular for offences of serious nature or where the duty involved in high. Conclusion of proceedings may be app .....

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mated to the assessee in writing. There is no need to issue an adjudication order. Further, there is no need to undertake review of such conclusion of proceedings. 9.3 Call-Book Cases: A call book of cases is maintained of such cases which cannot be adjudicated immediately due to certain specified reasons and adjudication is to be kept in abeyance. The following categories of cases can be transferred to call book:- i. Cases in which the Department has gone in appeal to the appropriate authority. .....

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se 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 Excis .....

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bunal. 11.1 Monetary limits: Board has revised monetary limits for adjudication on 29.09.2016. The revised monetary limits and other instructions in relation to adjudication are as follows: Sl. No. Central Excise Officer Monetary Limits of duty/ tax/ credit demand for Central Excise and Service Tax 1. Superintendent Not exceeding Rupees Ten lakhs 2. Deputy/ Assistant Commissioner Above Ten Lakhs but not exceeding Rupees Fifty Lakhs 3. Additional/ Joint Commissioner Above Fifty Lakhs but not exce .....

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ioned at Sl.No. (a) and (d) under the first proviso to Section 35B(1) of the Central Excise Act, 1944 shall be adjudicated in the following manner: S.No. Central Excise Officer Monetary Limits for Central Excise 1 Additional/Joint Commissioner Exceeding ₹ 50 lakh 2 Deputy/Assistant Commissioner Above ₹ 10 lakh but not exceeding ₹ 50 lakh 3 Superintendent Not exceeding ₹ 10 lakh 11.2 Other important points: Cases involving taxability, classification, valuation and extended .....

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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 noti .....

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dicating 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. 12.1 Jurisdiction of Executive Commissionerate: Officers of Central Excise within the jurisdiction of a Commissionerate normally issue a SCN for demands of duty pertaining to assessees or units falling within the jurisdiction of the Commissionerate and such cases are adjudicated by the Officers of the Executive Com .....

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n within the Zone, including to the officers of various ranks of the Audit Commissionerate. In case of Service Tax Zones, the cases would have to be transferred across the Zones. The Zonal Member in-charge shall take stock of pending cases at the Commissioner level, and in exercise of powers conferred to the Board, earmark these cases to Commissioner (Audit) and Commissioners of Central Excise across Zones if there is a need to do so. The function of review, appeal etc even for cases adjudicated .....

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15-CX dated 10.02.2015 and Circular No. 1000/7/2015-CX dated the 3rd March, 2015. The salient points of the instruction given are as follows. 12.4 To assign cases for adjudication amongst the Additional Director General (Adjudication) and the field Commissioners, following general guidelines may be followed:- (i) Cases including cases pertaining to the jurisdiction of multiple Commissionerates, where the duty involved is more than ₹ 5 crore shall be adjudicated by the ADG (Adjudication). H .....

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ere 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 j .....

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Commissioner before whom the adjudication proceedings are continuing unless the Director General, CEI issues orders appointing a new adjudicating authority in terms of the guidelines above or where Board appoints a new adjudicating authority on the basis of proposal of DGCEI. (vii) Where DGCEI proposes appointment of an adjudicating authority not in conformity with the above guidelines, DGCEI shall forward such proposal to the Board. (viii) Cases to be adjudicated by the officers below the rank .....

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cuments: A show cause notice and the documents relied upon in the Show Cause Notice needs to be served on the assessee for initiation of the adjudication proceedings. The documents/records which are not relied upon in the Show Cause Notice are required to be returned under proper receipt to the persons from whom they are seized. Show Cause Notice itself may incorporate a clause that unrelied upon records may be collected by the concerned persons within 30 days of receipt of the Show Cause Notice .....

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tlement 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 .....

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e 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 given with sufficient interval of time so that the noticee may avail opportunity of being heard. Separate communications should be made to the noticee for each opportunity of personal hearing. In fact separate letter for each hearing/extension should be issued at sufficient interval. The Adjudicating authority may, i .....

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ication order must be a speaking order. A speaking order is an order that speaks for itself. A good adjudication order is expected to stand the test of legality, fairness and reason at higher appellate forums. Such order should contain all the details of the issue, clear findings and a reasoned order. 14.6 Analysis of issues: The Adjudicating authority is expected to examine all evidences, issues and material on record, analyse those in the context of alleged charges in the show cause notice. He .....

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d commission during personal hearing and finally the operating order. At any cost, the findings and discussions should not go beyond the scope and grounds of the show cause notice. 14.8 Quantification of demand: The duty demanded and confirmed should be clearly quantified and the order portion must contain the provisions of law under which duty is confirmed and penalty is imposed. The duty demanded in an adjudication order cannot exceed the amount proposed in the Show Cause notice. 14.9 Corrobor .....

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ible 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 exc .....

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r se. Therefore, adjudicating order should normally be issued. It may be noted that after issuing an adjudication order, the adjudicating authority becomes functus officio, which means that his mandate comes to an end as he has accomplished the task of adjudicating the case. As a concept, functus officio is bound with the doctrine of res judicata, which prevents the reopening of a matter before the same court or authority. It may also be noted that under the Central Excise Act, adjudicating auth .....

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cation order/formal order. 16.1 Signing of the order: The adjudicating order should be signed by the adjudicating authority only and it should not be further delegated to any other officer and the adjudicating order furnished to the noticee(s) has to be an originally signed copy and not an attested copy. 17.1 Adjudication of SoFs/LARs raised by CERA which are not converted into DAP : SoFs/LARs are replied by the Commissionerate and therefore these cases may be adjudicated after ensuring that the .....

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erred above, reply of the party, relevant legal provisions, case laws on the subject and relevant 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 .....

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tion 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 Hon‟ble Supreme Court or where a circular of the Board has been issued on the subject, further correspondence with the Board on the audit objections, even if they have become DAPs, is not necessary and such cases .....

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udication or appeal and statutory period of appeal is over; (ii) Where the CESTAT or High Court has confirmed the demand and no stay is in operation as explained in para 23.2. (iii) Where there is an admitted liability reflected in the periodic return as explained in para 24. 19. Powers of recovery: Recovery of confirmed demand can be made by exercising any of the powers under Section 11 of the CEA, 1944 such as adjustment from refunds payable, attachment and sale of excisable goods of such pers .....

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at under sub-Section (2) of Section 11 of the Central Excise Act, 1944, now Central Excise Officers are empowered to issue an order to any other person from whom money is due to such person from whom recovery of arrears is required to be made. Such notice for recovery to the other person is generally referred as Garnishee Notice. 20. Recovery from the assets under liquidation: Section 53 of the Insolvency and Bankruptcy Code, 2016 provides for order of priority for distribution of proceeds from .....

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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 durin .....

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eals) before the Tribunal, 10% is to be paid on the amount of duty demanded or penalty imposed by the Commissioner (Appeals). This need not be the same as the amount of duty demanded or penalty imposed in the Orderin-Original in the said case. (ii) In a case, where penalty alone is in dispute and penalties have been imposed under different provisions of the Act, the pre-deposit would be calculated based on the aggregate of all penalties imposed in the order against which appeal is proposed to be .....

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fore Commissioner (Appeals) or CESTAT. Once the amount is paid, no coercive action shall be taken for recovery of the balance amount during the pendency of the appeal proceedings before these authorities. 20.3 In cases where stay application is pending before Commissioner (Appeals) or CESTAT for periods prior to 6-8-2014, no recovery shall be made during the pendency of the stay application. 20.4 Recovery of demand confirmed by CESTAT or High Court: Where a demand has been confirmed by the CESTA .....

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ained in paragraph 21 above. Section 11A(16) on the other hand provides that provisions of Section 11A shall not apply for duty 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 .....

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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 Commissioners for granting sanction to pay arrears in monthly installments greater than 24 and upto a maximum of 36 monthly installments. 22.2 The facility to pay arrears in installments shall generally be .....

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arrears in instalments. The decision shall be taken on a case to case basis taking into consideration the facts of the case, interest of the revenue, track record of the company, its financial situation, etc. 22.3 The application for allowing payment of arrears shall be made to the jurisdictional Commissioner giving full justification for the same. The approval of the application should be in writing with due acknowledgment taken on record. The permission should clearly identify the number of i .....

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unviable and there is likelihood of winding up of business. After cancelling the permission to pay in installments, action should be taken forthwith for recovery of arrears. Part IV: Miscellaneous 23: Service of decisions, orders, summons, etc: The statutory provisions for Service of decisions, orders, summons, etc. have been provided under Section 37C of the CEA, 1944. The Section provides that the service of interalia of any order or notice, which would include a SCN or an adjudication order .....

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eferred. 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 .....

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g the duty himself, or as ascertained by the Central Excise Officer shall not be served any notice in respect of the duty so paid or for any penalty. The provisions of Section 11A(1)(b) read with Section 11A(2) may be referred to in this regard. 26. Refund of pre-deposits:-(i) Where the appeal is decided in favour of the party/assessee, he shall be entitled to refund of the amount deposited along with the interest at the prescribed rate from the date of making the deposit to the date of refund i .....

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whether order of the appellate authority is proposed to be challenged by the Department or not. (iii) If the Department contemplates appeal against the order of the Commissioner (A) or the order of CESTAT, which is in favour of the appellant, refund along with interest would still be payable as per the time limits prescribed in the law or in the order, unless such order is stayed by a competent Appellate Authority. It is important to note that in such cases of consequential refund, besides fili .....

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1 32/80-CX.6 dated 26.7.80 2 5/83-CX.6 dated10.3.1983 3 207/47/85-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 .....

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/96-CX, dated 2.2.1996) 36 228/62/96-CX, dated 8.7.1996 37 268/102/96-CX, dated 14.11.1996 38 208/42/96-CX dated 02.05.1996 39 354/118/96-TRU, dated 6.1.1997 40 290/6/97-CX. dated 20.1.1997 41 295/11/97-CX., dated 10.2.1997 42 298/14/97-CX, dated 25.2.1997 43 299/15/97, dated 27.2.1997 44 312/28 /97-CX., dated 22.4.1997 45 317/33/97-CX, dated 18.6.1997 46 328/44/97-CX, dated 13.8.1997 47 350/66/97-CX. dated 4.11.1997 48 362/78/97-CX, dated 9.12.1997 49 385/18/98-CX dated 30/3/98 50 373/06/98-CX, .....

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