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CHAPTER- 5 PROCEDURE TO ASSESS TAX

This chapter has been divided into following sub chapters:-

5.1. REGISTRATION

5.2. PAYMENT OF SERVICE TAX

5.3. BOOKS & RECORDS

5.4. FILING OF RETURN

5.5. ASSESSMENT

5.6. APPEALS

5.7. DEMAND AND REFUNDS

5.8. RECTIFICATION OF MISTAKE

5.9. POWER OF SEARCH

5.10. PENALTY

5.11. IMPOSITION OF INTEREST

5.12. REVISION

5.13. CLASSIFICATION

5.14. VALUATION

For easy reference and analysis:-

HOLANI\SERVICE TAX 1

5.1 REGISTRATION

5.1.1 When application of registration to be filed:-

Rule 4 of the Service Tax Rules, 1994 relating to registration stipulates that every person liable for paying the Service Tax shall make an application to the concerned Central Excise Officer appointed under Rule 3 in Form ST-1 for registration within a period of 30 days of the service tax having come into force. Registration in form S.T. –2 shall be granted within seven days.

It has been further provided that where a person commences the business of providing a taxable service after such service has been notified; he shall make an application for registration within a period of 30 days from the date of such commencement.

It has also been provided that a person liable for paying the service tax in the case of taxable services referred to in sub-clause (zzp) of clause (105) of section 65 of the Act may make an application for registration on or before the [31st day of March, 2005].

Where the aggregate value of taxable service exceeds Rupees Seven Lakhs, the application for registration in specified form shall be filed within thirty days from the date on which the aggregate value of taxable service exceeds Rupees Seven Lakhs [w.e.f. 1/04/2007 and prior to the same Rs. Three Lakhs] – see rule 3 (2) of the Service Tax (Registration of Special Categories of Persons) Rules, 2005 with Notification No. 26/2005 S.T. dt. June7, 2005.

5.1.2 Modification in Application:-

Rule 4(5A) of the Service Tax Rules, 1994 lay down that where there is a change in any information or details furnished by an assessee in Form ST-1 at the time of obtaining registration or he intends to furnish any additional information or detail, such change or information or details shall be intimated, in writing, by the assessee, to the jurisdictional Assistant Commissioner or Deputy Commissioner of Central Excise, as the case may be, with-in a period of thirty days of such change.

5.1.3 When there is centralized accounting or billing system:-

Sub-rule (2) of rule 4 provides that where an assessee is providing a taxable service from more than one premises or offices and has centralized billing systems or centralized accounting systems in respect of such service, and such centralized billing or centralized accounting are located in one or more offices or premises, he may at his option register such premises or offices from where such centralized billing or centralized accounting systems are located.

Sub-rule (3) stipulates that the registration under sub-rule (2), shall be granted:-


a. by the Commissioner of Central Excise or the Chief Commissioner of Central Excise, as the case may be, in whose jurisdiction all the premises or offices providing taxables service and the premises or offices from where centralized billing or centralized accounting is done, are located ; and

b. in case other than (a) above, by such authority, as may be specified by the Board:

However, the above system is not applicable in those cases where the registration has been granted for such centralized offices or premises prior to April 1, 2005.

The detailed procedure to be followed by the assessee in case he opted for centralized registration and payment of service tax was the same as had been prescribed vide Circular No. 21/1/97, dated 27-1-1997 (F. No. 137/11/96 CX.4) in the case of services rendered by courier agencies. Now, the procedure has been prescribed vide CCE, Madurai – 2, Trade Notice No.52/2005 S.T.U. dt.13/06/2005 and CBEC Circular vide M.F.(D.R.) Letter F.No.B-1/06/2005 TRU dt.27/07/2005 as given under Part V of this Book.

5.1.4 When each premises is required to be registered:-

However, where an assessee is providing a taxable service from more than one premises or offices, and does not have any centralized billing system, he shall be required to make separate applications for registration in respect of each such premises or offices to the concerned Central Excise Officer in jurisdiction.

5.1.5 When there is not a centralized accounting system:-

Rule 4(3A) lays down that where an assessee is providing a taxable service from more than one premises or offices, and does not have any centralized billing system or centralized accounting systems, as the case may be, he shall make separate applications for registration in respect of each of such premises or offices to the jurisdictional Superintendent of Central Excise.

5.1.6 When there is more than one taxable services provided by the assessee:-

Sub-rule (4) of rule 4 lays down that where an assessee is providing more than one taxable service, he may make a single application, mentioning therein all the taxable services provided by him to the concerned Central Excise Officer.

In other words, only a single registration for all the taxable services provided by the service provider shall be given and the declaration submitted at the time of registration in the application for registration (ST 1) shall be accepted by the jurisdictional Superintendent of Central Excise and the registration must be given immediately but within seven days in any case.


5.1.7 When service provider is non-resident:-

In case of a non resident Indian or a person who was from outside India, who did not have any office in India, registration was not required if he paid the tax under rule 6. However, by Notf. No. 12/2002 ST dt. 1-8-2002, the facility has been withdrawn. Now, in terms of Rule 2(1)(d)(iv), read with Explanation to Sec. 65 (105) of the Finance Act, 1994, the person receiving taxable service in India shall be liable for paying service tax, so, he shall be required to be registered.

5.1.8 When business is transferred:-

Where a registered assessee transfers his business to another person, the transferee shall obtain a fresh certificate of registration.

5.1.9 When the assessee ceases to provide the taxable service:-

Every registered assessee, who ceases to provide the taxable service for which he has been registered, shall surrender his registration certificate immediately. However, on receipt of such certificate for surrender, the Superintendent shall ensure that the assessee has paid all monies due under the provisions of the Act or Rules & Notifications issued under the Act, than cancel the certificate.

5.1.10 When the constitution is changed:-

In the case of limited company, death of a director would not affect the status of Registration, since Registration is issued to the body corporate recognizing the same as a legal person. In the case of partnership firm also normally no difficulty would arise with regard to succession, since the surviving partners will continue either in the same name or with the change of name of the business. However, in the case of proprietary business when the proprietor dies, the successor in estate has to apply for a fresh Registration. Ordinarily fresh Registration would be issued to the person who happens to be in the actual possession of the business. However, granting the fresh registration to the successor in estate could not be regarded that the Government has accepted the said person as the legal successor / heir to the deceased.

5.1.11 Penalty for non-registration:-

With effect from sept. 10, 2004, now under section 77, at maximum, a penalty of Rs. 1,000/- may be imposed for non-registration or delayed registration except in case of bonafide failure as given under sec. 80 of the Act, 1994.

5.1.12 Service Tax Code (STC) Number based on Permanent Account Number (PAN):-


The application for obtaining service tax code number has been specified vide Form No.11. Since all concerned persons requiring registration in terms of Rule 4 of Service Tax Rules. 1994 (hereafter referred to as the Rules) will be applying for allotment of STC Number, a centralized allotment will be done at the level of;

5.1.13 Service Tax Cell, where a concerned person has one premises or office:- Headquarter or Division: - Where a concerned person has one premises or office; or more than one premises or offices having centralized billing / accounting system and has allowed centralized registration of only such premises or office where such centralized billing / accounting is done in terms of sub-rule (2) or (3A) of Rule 4 of the Rules

Commissionerate: - Where a concerned person has more than one premises or offices in respect of which registration has been obtained within the jurisdiction of the same Commissionerate

Directorate General of Service Tax, Mumbai (DGST): - Where a concerned person has obtained registration for more than one premises or offices falling within the jurisdiction of different Commissionerates.

The STC Number will be PAN + alpha –code (ST)+ numberic – code (001). If there are more than one premises or offices or offices registered of such a person having common PAN for all such premises or offices, the last number code of STC Number would be “001, 002, 003……… etc.]

The procedure to allot the service tax code number has been prescribed by vide service tax circular No. 40/2/2002, dt. 21-2-2002 – 2002 (140) ELT. T55.

5.1.14 Input service distributor: -

In the definition given under clause (m) of Rule 2 of CENVAT Credit Rules, 2004, input service distributor means an office of the: -

Manufacturer or producer of final products; or

The provider of output service,

(i) which receives invoices issued under rule 4A of the Service Tax Rules, 1994 towards purchases of input services; and

(ii) issues bills, invoices or as the case may be, challan for the purposes of distributing the credit of service tax paid on the said services to such manufacturer or provider, as the case may be,

Rule 4A(2) of the Service Tax Rules 1994 lays down that every input service distributor distributing credit of taxable service shall, in respect of credit


distributed, issued an invoice, a bill or, as the case may be, a challan signed by such person or a person authorized by him, for each of the recipient of the credit distributed, and such invoice, bill or as the case may be challan shall be serially numbered and shall contain the following, namely: -

(i) the name, address and registration number of the person providing input service and the serial number and date of invoice, bill or as the case may be, challan issued under sub-rule(1);

(ii) the name [and address] of the said input service distributor;(iii) the name and address of the recipient of the credit distributed;(iv) the amount of the credit distributed.

[Provided that in case the input service distributor is an office of a banking company or a financial institution including a non-banking financial company, or any other body corporate or commercial concern, providing service to a customer, in relation to banking and other financial services, an invoice, a bill or, as the case may be, challan shall include any document, by whatever name called, whether or not serially numbered but containing other information in such documents as required under this sub-rule.]

In terms of Rule 3 of the Service Tax (Registration of Special Categories of Persons ) Rules, 2005, the input service distributor shall apply for registration with-in Thirty Days from the date of commencement of business or the 16th day of June, 2005 which ever is later in specified form – See also Notf. No. 26/2005 S.T. dt.June7, 2005.


5.2. PAYMENT OF SERVICE TAX

5.2.1 When payment of tax to be deposited:-

Rule 6 of the Service Tax Rules, 1994, which pertains to payment of service tax has been amended vide Notification No. 54/98 – ST, dated 7-10-1998. In case where an assessee is an individual or a partnership firm, the service tax on the value of taxable services received during any quarter shall be required to be paid by him to the credit of the Central Government by the 5th day of the month immediately following the said quarter. However, in all other categories of service tax assessee, the service tax on the value of taxable services received during any calendar month shall be required to be paid by them to the credit of the Central Government by the 5th day of the month immediately following the said calendar month. However, service tax for the month of March or the quarter ending in the month of March is to be paid by 31st March, of that calendar year.

5.2.2 When fee is received in advance:-

Rule 4A(1) of the Service Tax Rules. 1994 stipulates that every person providing taxable service shall [not later than fourteen days from the date of completion of such taxable service or receipt of any payment towards the value of such taxable service, whichever is earlier], issue an invoice, a bill or as the case may be, a challan signed by such person or a person authorized by him [in respect of such taxable service] provided or to be provided and such invoice, bill or as the case may be, challan shall be serially numbered and shall contain the following, namely:-

(i) the name, address and the registration number of such person;(ii) the name and address of the person receiving taxable service;(iii) description, classification and value of taxable service provided or to be

provided; and (iv) the service tax payable thereon.

Sec. 67 (3) of the Finance Act, 1994 lays down that the gross amount charged for the taxable service shall include any amount received towards the taxable service before, during or after provision of such service.

The term “value of any taxable service” as defined by sec. 67 means the gross amount charged by the service provider for such services provided or to be provided by him subject to certain specified adjustments.

It means in case where the value of taxable service is received in advance before providing the said service, the service tax shall be paid on the value of service determined to the relevant month or quarter in which the advance has been received. In other words, in such month or quarter as the case may be, to the extent of the amount received, which would be pertaining to the extent of such service to be provided, tax is to be determined and paid accordingly at the time of receiving such advances.


5.2.3 Pre-levy services:-

If the service has been rendered prior to imposition of the levy on such service, but consideration has been received after the levy, on such recovery, the tax payable shall be Nil.

5.2.4 Pre levy advance:-

The liability of Service Tax has been imposed by Sec.66 of the Act 1944, the liability to pay the levy has been determined by Sec.68 and by Rule 6 of the Service Tax Rules, the liability to pay the levy has been postponed till the recovery of the value of such services provided or to be provided. In other words, an amount becomes value of taxable service even when it has a nexus with the service provided or to be provided subject to certain specified adjustments. That is the reason why the expression used is “value of taxable services” and not amount. The implication is that the tax has to be paid on the value of taxable services provided or to be provided at any time [i.e. before, after or during the month or quarter in which the amount has been received]. Thus, Rule 6 (1) cannot be read in isolation, but read along with the other provisions of the Act, it becomes clear that where the value of taxable service has been received in advance for a service which became taxable subsequently, service tax shall not be paid on the value of the service attributable to the relevant month / quarter which shall be on pro rata basis, because of the fact that at the time of receipt, the assessment has been made @ Nil rate of tax or as non taxable and as per provisions of the Rule 4A, the invoice shall be issued within the specified time of receipt of such advance.

5.2.5 When service tax is deposited excessively:-

Sub-rule (3) of Rule 6 provides a facility for adjusting excess payments of service tax by the assessee. It has been provided that where an assessee has paid to the credit of Central Government Service Tax in respect of a taxable service, which is not so provided by him either wholly or partially for any reason, the assessee may adjust the excess service tax so paid by him (calculated on a pro-rata basis) against his service tax liability for the subsequent period, provided that the assessee has refunded the value of taxable service [including the service tax thereon] to the person from whom it was received. However, the assessee is required to file the details in respect of such suo motto adjustments done by him at the time of filing the Service Tax Returns.

Where an assessee has opted for registration under sub-rule (2) of rule 4 of these rules and has paid to the credit of Central Government any amount in excess of the amount required to be paid towards Service Tax liability for a month or quarter, as the case may be, for the reason of not receiving details of payments received towards the value of taxable services at his other premises or offices, the assessee may adjust such excess amount so paid as service tax by him against his service tax liability for the subsequent period and the details


of such adjustment shall be intimated to the jurisdictional Superintendent of Central Excise within a period of fifteen days from the date of such adjustment.

5.2.6 How the payment to be made:-

Rule 6 of the Service Tax Rules, 1994 lays down that the procedural aspect of the payment of service tax on monthly / quarterly basis. There is a provision for provisional assessment also. Government has decided that this collection of Service Tax shall be deposited by way of (Yellow colour) TR-6 challan forms (Major Head 0044) submitted only through those banks, which are presently authorized to collect the Central Excise duties in the Commissionerate. For computerized accounting of Service Tax, each assessee shall be assigned code called E.C.C. Code, which must be invariably mentioned on the TR-6 challan forms while depositing the monthly Service Tax. These and other code numbers shall be informed to the assessee, which he should invariably mention on the TR-6 Challans.

5.2.7 When recoveries are composite:-

Rule 6 stipulates that the payment shall be based on the receipt of the value of taxable services, provided or to be provided. Now, it is not based on the gross amount charged or billed to the client, but what is important, is the recovery on account of such bills, so, in case where there is a partial payment, and subsequently, there is a settlement between the parties under which a part of consideration is foregone, the bill must be revised or there is a supplementary bill, but with endorsing the original bill also about such settlement. The liability of such remaining consideration, which has been foregone, is also suspended.

In such a situation, service tax shall be measured by applying the following formula: –

Service tax = [Cum-tax recoveries – Permissible deductions] X Rate of Service Tax / (100 + Rate of Service tax)

For example, if total billing amount in July 17, 2003 was Rs. 7500/-, in which out-of-pocket expenditure was Rs. 2,500/- (which is permissible deduction in terms of CBEC guidelines), then the gross amount for fee (excluding expenditure) would be Rs. 5,000/- in which service tax is also included because of not charged separately. Rate of service tax was 8%. However, actual recovery during May 2005 was Rs. 6000/-. Now, the service tax shall be calculated as follows:

Gross receipt towards fees = Rs. 6,000.00 – Rs. 2,500.00 = Rs. 3,500.00

Service tax = Rs. 3,500 X 8 / (100 + 8) = Rs. 259/- Value of taxable services = Gross receipt towards fees – Service tax

= 3500 – 259 = Rs. 3241/-


This can be crosschecked as follows:

Rs. 3241 X 8% = Rs. 259/-

[See – GOVERNMENT OF INDIA s. MADRAS RUBBER FACTORY LTD. 1995 (77) ELT 433 (SC)]

See also Director General Service Tax, Mumbai, F. No. V/ DG ST/ 21(7) / Engg/ 16 / 2000 / 1976 dt. 23-8-2001.

In Sec 67, the Finance (No.2) Act, 2004 had introduced an Explanation [now see sec.67 (2)] which is reproduced as follows:-

Explanation 2 – where the gross amount charged by a service provider is inclusive of service tax payable, the value of taxable service shall be such amount as with the addition of tax payable, is equal to the gross amount charged.

5.2.8 The payment shall be based on the receipt of the value of taxable services:-

Rule 6 stipulates that the payment shall be based on the receipt of the value of taxable services. Now, it is not based on the gross amount charged or billed to the client, but what is important, is the recovery on account of such bills, so, in case where there is a partial payment, and subsequently, there is a settlement between the parties under which a part of consideration is foregone, the bill must be revised or there is a supplementary bill, but with endorsing the original bill also about such settlement. The liability of such remaining consideration, which has been foregone, is also suspended.

5.2.9 The rate to be applied:-

The liability of the service tax has been imposed by Sec. 66 of the Finance Act, 1994, the time of paying the liability has been determined by Sec. 68 and by Rule 6 of the Service Tax Rules, 1994, the liability to pay the levy has been postponed till the recovery of the value of such service provided or to be provided. In case where specified taxable service has been provided prior to the taxability of the same or where such service was exempted at that time, but when the payment has been received, such exemption has been with-drawn or the tax has been imposed, there is no tax liability because such measurement has not been postponed, only the payment of measured tax has been postponed in sequence of the recovery. For example, from 14-05-2003, the rate of service tax had been increased to the extent of @ 8% on the assessable value, but prior to 14-05-2003, the rate of tax was @ 5% on such assessable value, it means all the services prior to 14-05-2003 has been assessed @ 5% irrespective of the fact on which date, such payments has been recovered. In other words, in case when such payment has been received in Oct. 2004, the


service tax was payable @ 5% irrespective of the rate prevailing on such date of receipt of such consideration.

5.2.10 Payment through Cheque:-

Rule 7 of the Central Government Account (Receipts and Payment) Rules, 1983 interalia provides that the taxpayers directly into any branch of an authorized bank can credit the Government dues including taxes. As per Rule 79 of the Treasury Rules of the Central Government such payments / cheques can make credit also. Accordingly, a large number of taxpayers including the Service Tax assessees discharge their tax liabilities by depositing a cheque for the required amount in the authorized Banks.

Where cheques have been deposited before due date and the amount is credited to the Government account in due course (but after the due date), any interest and penalty is not leviable – SANGHI POLYESTERS LTD. Vs. CCE 2001 (134) ELT 344 (AP).

And if the cheque is not dishonored later, the payment shall be deemed to have been made on the date when the cheque was handed over to the Government's bankers – See rule 6 & 7 of the Central Government Account (Receipt and Payments) Rules, 1983 and Rule 79 & 80 of the Central Treasury Rules – SAHARA AIRLINES LTD. Vs. CCE 2000 (117) ELT 802 (GOI); BHARTI CELLULAR LTD. VS. C.C.E. 2002 (141) ELT- 66 (T); Notf. No. 12/2002 ST dt. 1-8-2002 [Rule 6(2A) of the Service Tax Rules, 1994].

However, if the cheque is not honored in due course or the clearance is abnormally delayed for any lapse on the part of the assessee, the Department would be free to take penal action etc., as deemed fit.

However, the CBEC in the M.F.(D.R.) Circular No. 28/2002 Cus. Dated 24-5-2002 reported in 2002 (142) ELT T48-T49 stipulated that in such cases, the date of payment shall be the date on which the cheque is cleared / realized by the bank. The CBEC relied on Rule 20 of the Rules, 1983. Now, the Circular is infructuous.

5.2.11 Precautions to be made:-

The assessee should take the following precautions at the time of paying the Service Tax:

i. Service Tax should be paid within the time limit laid down in this regard.

ii. It should be deposited in the specified branches of the banks designated for this purpose in each Central Excise Commissionerate.


iii. The major head and sub-head relating to the service provided by the assessee should be correctly filled in the TR-6 Challan.

iv. The TR-6 Challan should be yellow in colour and should be filed in quadruplicate after being properly filed.

5.2.12 Tax to be deposited in the nominated bank:-

For payment of service tax specific Bank has been nominated for every Central Excise Commissionerate. If service tax amount is deposited in a branch of Bank other than the nominated Bank, it amounts to non-payment of service tax.

5.2.13 Payment of Service Tax into non-designated banks:-

Any payment of Service Tax into non-designated banks would not amount to paying Service Tax. As genuine difficulty may be faced by those who have committed such mistake, as a one measure transferring the amount from non-designated banks to the appropriate designated banks, in consultation /concurrence with PAOs of both the Commissionerates may by resorted. [Vide Director General, Service Tax, Mumbai, Latter F. No. V/ DGST/ 21 (7) / Engg./16/2000 / 1976, dated 23-8-2001 –2001 (137) E.L.T. (T 17), read with Directorate of Publicity and Public Relations, Custom & Central Excise, New Delhi, October, 2003 – 2003 (158) E.LT. (T23). – See also NISA INDUSTRIAL SERVICE PVT. LTD. Vs. CCE, 2003 (157) ELT 66 (T) in which it was held as a mere procedural issue.

5.2.14 When the payment is delayed:-

In case of delay in making payment of service tax in time, the interest is also required to be paid @ 13% per annum for the period by which the crediting of the levy or any part thereof is delayed. However, in case where there is a public holiday on 5th day of month, he may pay the tax on next working day immediately following the holiday – CBEC Circular No. 63 / 12 / 2003 ST dt. 14-10-2003 –[2003 (157) ELT- T 63].

5.2.15 Rounding off to multiples of a Rupees:–

See CBEC Circular No. 53/2/2003 S.T. dt. 27-03-2003 – 2003 (154) ELT- T24. In case where the amount of service tax, interest, penalty, fine or any other sum payable and the amount of refund or any other sum due, under the provisions shall be rounded off to the nearest rupee and, for this purpose, where such amount contains a part of a rupee consisting of paise then, if such part is fifty paise or more, it shall be increased to one rupee and if such part is less than fifty paise, it shall be ignored.

5.2.16 When using wrong accounting code:-


See CBEC Circular No. 58/7/2003 S.T. dt. 20-5-2003 (154) ELT – T 52, it has been clarified that the assessee need not be asked to pay the service tax again. In such cases the matter should be sorted with the P.A.O. As regards to the cases where the assessee was asked to pay service tax again, the amount thus paid may be refunded by the concerned divisional Asstt. Commissioner / Deputy Commissioner.

5.2.17 Payment of service tax by utilizing CENVAT Credit on input, service, input & capital goods:-

For the same see Rule 3(4) of the CENVAT Credit Rules, 2004 read with Rule 6 of the Rules under Chapter 10 in part I of this book. When input service [other than certain specified input services under rule 6(5) of the CENVAT Credit Rules 2004] are common for exempted service as well as output service, the credit [other than input service as specified under rule 6 (5)] to the extent 20% of tax liability on the output service could be utilized to pay service tax on output service during the month / quarter as the may be. However, such restriction is not applicable on certain specified input service as given under Rule 6 (5), which means the CENVAT Credit on such input services, could be utilized without having any restriction of 20%.

5.2.18 Penal consequence for delayed payment, short payment or non payment:-

See sec. 75, 76, 78 read with Sec. 80 of the Finance Act, 1994 under the title “Penalty” under Chapter 5.10 of Part II of the book.

5.2.19 Tax deducted at source is the part of the consideration received:-

The Service Tax is to be paid on the value of taxable services, which is charged by an assessee. Any income tax deducted at source is included in the charged amount. Therefore, the Service Tax is to be paid on the amount of income tax deducted at source because it is also a part of Consideration. 5.2.20. For E-Payment of Service Tax see CBEC Circular F.No.137/127/2006 CX4 vide Circular No.88/06/2006 ST.dt.6/11/2006 vide Part V of this Book.

5.2.21. Applicability of Service tax on public authorities see CBEC circular No.89/7/2006 S.T. dt.18/06/2006 vide Fx. No.255/1/2006 Cx4 under Part V of this Book.-


5.3. BOOKS & RECORDS

5.3.1 No specific records have been prescribed:-

Any specific records to be maintained by the service tax assessee has not been prescribed. The records, including computerized data if any, being maintained by an assessee as required under any other laws in force (e.g. Income tax, Sales tax) is acceptable to the Central Excise Department for the purpose of Service Tax. All assessees should furnish to the Superintendent of Central Excise at the time of filing his return for the first time a list of all books of accounts and records maintained by the assessee in relation to service tax including memoranda received from his branch office. See rule 5(1) of the Service Tax Rules, 1994.

5.3.2 Inspection of Records:-

All such records shall be preserved at least for a period of five years immediately after the Financial year to which such records pertain. The records are available for inspection and examination at all reasonable time by the Departmental Officers duly authorised by the jurisdictional Assistant Commissioner or Deputy Commissioner as the case may be at the registered premises [including the premises from which the service have been rendered].

5.3.3 Documents for taking credit of specified duties or service tax:-

Rule 9(1) of the CENVAT Credit Rules, 2004 [previously Rule 5(1) of the Service Tax Credit Rules, 2002] is in regard to the documents by which the credit may be taken. It has been provided that the CENVAT Credit of specified duty or service tax as the case may be, paid on input, capital goods or input service shall be availed on the basis of an invoice or bill or challan issued by the service provider of input service or input service distributor or specified categories of supplier of input or capital goods on or after Sep. 10, 2004, indicating clearly the serial number of document, date of issue, description and value of the input service, the service tax paid / payable, service tax registration No. and address of input service provider. Credit of specified duty paid on capital goods and input is also available subject to documents as prescribed under rule 9 of the CENVAT Credit Rules, 2004. In case of input service on account of goods transported by road, the credit can be taken on the basis of TR-6 challan for tax paid by the assessee themselves in terms of Notf. No. 35/2004 S.T. dt Dec. 3, 2004 read with the documents mentioned in rule 4B of the Service Tax Rules, 1994. 5.3.4 Records for taking credit:-

Rule 9(4) of the CENVAT Credit Rules 2004 lays down that the manufacturer of final products or the provider of output service shall maintain proper records for the receipt, disposal, consumption and inventory of the inputs and capital goods in which the relevant information regarding the value, duty paid, the person from whom the inputs or capital goods have been procured is recorded and the


burden of proof regarding the admissibility of the CENVAT credit shall lie upon the manufacturer or provider of output service taking credit.

Rule 9(4a) of the CENVAT Credit Rules 2004 lays down that the manufacturer of final products or the provider of output service or input service distributor availing CENVAT credit on input service shall maintain proper records in which the relevant information regarding the Sl. No. and date of document on which CENVAT credit is availed, service tax registration No. and name of the input service provider, description and value of input service, service tax credit availed, service tax credit utilized for payment of service tax on out-put service or utilized for distributing such credit shall be recorded. The burden of proof regarding the admissibility of CENVAT credit shall lie upon the person taking such credit.

Though the rule does not prescribed any specific format of the records to be maintained except the requirement of mentioning minimum information about input, capital goods and services on which the credit of the specified duties and taxes (including cess) to be or has been taken by the assessee. So the column of the records or the format of the records might be made as per the convenience subject to minimum required information to be contained in such records.

5.3.5 Formats of the records

(A) Records of input service for output service on which credit has been taken:

(1) (2) (3) (4) (5)Sl. No Date Name of

Input Service

Name and address of provider/distributor of input service

Registration No.

(6) (7) (8) (9) (10)Invoice No. and date

Value of Input service

Use of input service for output service

Other use of common input service

% of use i.e. ratio between 8: 9

(B). Records of input service for exempted services only for common out-put service on which credit has not been or to be taken on proportionate basis [other than those specified under rule 6(5) of the CENVAT Credit Rules, 2004].

(2) (3) (4) (5) (6) (7)S. No

Date Name of input Service

Name and address of input serviceProvider / distributor Address

Registration No.

Invoice No and date

Value of input service on which credit not taken


(C) Service Tax Credit Records:-

(1) (2) (3) (4) (5)Sl. No. Date Entry No. of

Input Service Records

% of use i.e value to be utilized to render output service

Amount of service tax involved

(6) (7) (8) (9) (10)Amount of service tax on exempted service

Service Tax Credit Taken [(5) – (6)]

Credit utilized Balance of Credit carried forward

Remark

(D) Records for Capital Goods (C.G) and Input:-

(1) (2) (3) (4) (5)Sl. No Date Name of

Input / C.G.Name and address supplier

Registration No.

(6) (7) (8) (9) (10)Invoice No. and date

Value Use of input / C.G. for output service

Other use of common input

% of use i.e. ratio between 8: 9

(E) Input / Capital Goods Credit Records:-

(1) (2) (3) (4) (5)Sl. No. Date Entry No. of

Input / C.G. Records

% of use i.e value to be utilized to render out put service for common input

Amount of duty involved

(6) (7) (8) (9) (10) (11)Amount of duty for exempted service

Credit Taken [(5) – (6)]

50% of C. G. Credit carried forward for next year

Credit utilized

Balance of Credit

Remark

(F) Records for input service distributor: - See Rule 4 A of the Service Tax

Rules, 1994 :-

See Rule 4 A read with Rule 5 since, there is no specific records prescribed for that purpose, but keeping the provisions of rule 9 of CENVAT Credit Rules, 2004 the following format could be used by the input service tax credit distributor in regard to input service tax credit: -

(1) (2) (3) (4) (5)


Sl. No. Date Name & Address of Input service provider

Registration No. of input service provider

Invoice / Bill / Challan No. date

(6) (7) (8) (9) (10)Input service Amount

Input Service Credit

Name and Address of recipient of input service credit

Amount of Input Service

Amount of input service tax credit distributed


5.4 FILING OF RETURN

5.4.1 Form of Return:-

Rule 7 of the Service Tax Rules, 1994 relates to filing of returns. All categories of service tax assessees shall be required to submit a half-yearly return in the prescribed form for the months covered in the half-yearly return in form ST-3 in triplicate along with:-

(a) Copy of each of the form TR-6 challans submitted for the month/quarter covered in the half, and

(b) A memorandum in form ST-3A giving full details of the difference between the amount of Service Tax collected and the actual amount deposit (month wise) if applicable.

It provides that the service tax assessee shall submit the half-yearly return, by the 25th day of the month following the particular half-year. In case of genuine hardship (i.e. on account of public holiday on the 25th day) the assessee may file the return on the next working day immediately following the holiday – CBEC CIRCULAR No. 63/12/2003 ST dt. 14-10-2003 – [2003 (157) ELT – T63]. This return is different from the return required to be filed under CENVAT Credit Rules. An assessee under Provisional Assessment has to file a monthly return.

5.4.2 Self-assessment:-

As per Section 70 of the Finance Act, 1994 as amended by Finance Act, 2001, now every person liable to pay the Service Tax shall himself assess the tax due on the services provided by him and shall furnish to the Superintendent of Central Excise, a half yearly return as prescribed under Rule 7 with a copy of TR-6 challan. With effect from 16-7-2001, the service tax is to be paid on the basis of Self-Assessment (except in case of provisional assessment). The delayed return could be furnished after payment of late fee not exceeding two thousand rupees. And vide Notification No.220/2007 S.T. dt.12/05/2007, rule 7C in the Service Tax Rules 1994 has been inserted which is as follows:- “7C. Amount to be paid for delay in furnishing the prescribed return.- Where the return prescribed under rule 7 is furnished after the date prescribed for submission of such return, the person liable to furnish the said return shall pay to the credit of the Central Government, for the period of delay of-

(i) fifteen days from the date prescribed for submission of such return, an amount of five hundred rupees;

(ii) beyond fifteen days but not later than thirty days from the date prescribed for submission of such return, an amount of one thousand rupees; and

(iii) beyond thirty days from the date prescribed for submission of such return an amount of one thousand rupees plus one hundred rupees


for every day from the thirty first day till the date of furnishing the said return:

Provided that the total amount payable in terms of this rule, for delayed submission of return, shall not exceed the amount specified in section 70 of the Act: Provided further that where the assessee has paid the amount as prescribed under this rule for delayed submission of return, the proceedings, if any, in respect of such delayed submission of return shall be deemed to be concluded. Explanation.- It is hereby declared that any pending proceedings under section 77 for delayed submission or non-submission of return that has been initiated before the date on which the Finance Bill, 2007 receives the assent of the President, shall also be deemed to be concluded if the amount specified for delay in furnishing the return is paid by the assessee within sixty days from the date of assent to the said Finance Bill. 5.4.3 Nil Return:- If no services have been provided during a half- year or no recovery during a half year on account of taxable services has been made, or no service tax payable because of any reason, such assessee may file a Nil Return within prescribed time limit. 5.4.4 The term “half year” & quarter”:-

“Half- year” means the period between 1st April to 30th September or 1st October to 31st March of a financial year [see rule 2(1) (d) of the Service Tax Rules, 1994] and “quarter” means the period between 1st January to 31 March or 1st

April to 30th June or 1st July to 30th September or 1st October to 31st December of a financial year [Rule 2(1) (e) of the Service Tax Rules, 1994].

5.4.5 Power of adjudication:-

Now, the Superintendent of Central Excise shall not be required to pass any order of assessment. However, where Service Tax on any service provided by the assessee has been paid shortly, not paid, refunded erroneously, the Superintendent of Central Excise shall refer the matter to the Assistant / Deputy Commissioner of Central Excise to issue a show cause notice for adjudication as per the provision of Sec. 73 of the Finance Act, 1994. In case where there is short levy or erroneously granted any refund due to suppression of facts, misstatement or evasion with intent to evade payment of service tax to be levied, the notice could be issued within five year from the relevant date.

5.4.6 Electronic Filing:-


Electronic filing of service tax return is also permissible vide CBEC Circular No . 71/1/2004 S.T. dt. 2-1-2004 – [2004 (163) ELT – T8]. The process of filing has been given in such Circular. It has been pointed out that in first time, when an assessee opts for E- filing of returns, the penalty under sec. 77 shall not be involved provided that where an assessee after having opted for E- filing does not succeed in such filing and getting the computer generated acknowledgement within 25 days from the due date, he should file a manual return as was being done hitherto. However, it does not mean non- payment of tax with due time is also condonable.

5.4.7 Return by registered post:-

Vide Trade Notice No. 6 /2002 dt 23/1/2002 issued by the CCE, Madurai- II – 2002 (140) ELT – T10, filing of returns with the concerned Divisional office by registered post is permissible and the assessee should ensure that the returns shall be delivered the concerned Divisional office on or before the due date. However, where the return delivered to the postal authority on or before due date but the post was delivered after due date, the delay has been condoned – CCE Vs. L&T LTD. 1999 (112) ELT 1004(T); PAPER MACHINE WIRE INDS. Vs. C.C.E. 1998 (99) ELT 106 (T) because date of posting material by Indian Postal Authorities for dispatch is the date of filing the document.- VANIVILAS CO-OPERATIVE SUGAR FACTORY LTD Vs U.O.I. 1983 (12) E.L.T. 290 (KARN.), NARAIN DAS BALLADHRAN PARMAR & ANR Vs U.O.I. & ORS 1978 (2) E.L.T. –J 695 (GUJ).

5.4.8 Penalty for failure to file service tax return:-

As per Section77, the failure to submit service tax return in due times attracts a penalty which may extent to Rs. 1000/- but no penalty is leviable when such failure is due to bono fide reasons.

5.4.9 Delayed Return:-

7C. Amount to be paid for delay in furnishing the prescribed return.- Where the return prescribed under rule 7 is furnished after the date prescribed for submission of such return, the person liable to furnish the said return shall pay to the credit of the Central Government, for the period of delay of- (i) fifteen days from the date prescribed for submission of such return, an amount of five hundred rupees; (ii) beyond fifteen days but not later than thirty days from the date prescribed for submission of such return, an amount of one thousand rupees; and (iii) beyond thirty days from the date prescribed for submission of such return an amount of one thousand rupees plus one hundred rupees for every day from the thirty first day till the date of furnishing the said return:


Provided that the total amount payable in terms of this rule, for delayed submission of return, shall not exceed the amount specified in section 70 of the Act: Provided further that where the assessee has paid the amount as prescribed under this rule for delayed submission of return, the proceedings, if any, in respect of such delayed submission of return shall be deemed to be concluded. Explanation.- It is hereby declared that any pending proceedings under section 77 for delayed submission or non-submission of return that has been initiated before the date on which the Finance Bill, 2007 receives the assent of the President, shall also be deemed to be concluded if the amount specified for delay in furnishing the return is paid by the assessee within sixty days from the date of assent to the said Finance Bill. 5.4.10Return filed by the Input service distributor:-

In terms of rule 4 of the Service Tax (Registration of Special Categories of Persons) Rules, 2005, the input service distributor shall furnish a return to the jurisdictional Superintendent of Central Excise in such forms and at such frequency as prescribed under rule 9 (10) of Cenvat Credit Rules, 2004.

5.4.11Adjustment in tax:-

Rule 4(A) and Rule 4(B) is as follows:-

(4A) Notwithstanding anything contained in sub-rule (4), where an assessee has paid to the credit of Central Government any amount in excess of the amount required to be paid towards service tax liability for a month or quarter, as the case may be, the assessee may adjust such excess amount paid by him against his service tax liability for the succeeding month or quarter, as the case may be.

(4B) The adjustment of excess amount paid, under sub-rule (4A), shall be subject to the following conditions, namely:-(i) excess amount paid is on account of reasons not involving interpretation oflaw, taxability, classification, valuation or applicability of any exemption notification,(ii) excess amount paid by an assessee registered under sub-rule (2) of rule 4, on account of delayed receipt of details of payments towards taxable services may be adjusted without monetary limit,(iii) in cases other than specified in clause (ii) above, the excess amount paid may be adjusted with a monetary limit of rupees fifty thousand for a relevant month or quarter, as the case may be,(iv) the details and reasons for such adjustment shall be intimated to the jurisdictional Superintendent of Central Excise within a period of fifteen days from the date of such adjustment.”.

5.4.12.Revision of Return.-


An assessee may submit a revised return, in Form ST-3, in triplicate, to correct a mistake or omission, within a period of sixty days from the date of submission of the return under rule 7.

Explanation.- Where an assessee submits a revised return, the ‘relevant date’ for the purpose of recovery of service tax, if any, under section 73 of the Act shall be the date of submission of such revised return.”.


5.5. ASSESSMENT

5.5.1 Self-Assessment:-

There is the self-verification system of return in the Form S.T.–3 filed by him under which the assessee shall himself assess the tax and shall furnish to the Superintendent of Central Excise a half yearly return in specified form. The Superintendent of Central Excise shall not be required to pass any order of assessment. See also sec. 70 read with rule 7 of the Service Tax Rules, 1994.

5.5.2 Provisional Assessment:-

Rule 6(4) of the Service Tax Rules, 1994 relating to provisional assessment. Where an assessee for any reason, is unable to correctly estimate, on the date of deposit, the actual amount payable for any particular month or quarter, as the case may be, the assessee can request for provisional assessment to the Assistant Commissioner or the Deputy Commissioner of Central Excise, as the case may be, in jurisdiction by giving the reasons for such request. In such a situation, rule 7 of the Central Excise Rules, 2002 is applicable Rule 6 (5) stipulates that the assessee shall file a statement giving details of the difference between the tax deposited and the tax liable to be deposited. In terms of rule 6(6), the Assistant Commissioner of Central Excise or Deputy Commissioner of Central Excise shall complete the same, as the case may be, in jurisdiction after calling further records as he may deem fit. In other words, in case of any dispute about the imposition of the levy or the quantum of the levy, the best option may be to request for provisional assessment to avoid or minimize penal consequences.

Rule 7 of the Central Excise Rules, 2002 is reproduced as follows:-

(1) Where the assessee is unable to determine the value of excisable goods or determine the rate of duty applicable thereto, he may request the Assistant Commissioner of Central Excise or the Deputy Commissioner of Central Excise, as the case may be, in writing giving reasons for payment of duty on provisional basis and the Assistant Commissioner of Central Excise or the Deputy Commissioner of Central Excise, as the case may be, by order allowing payment of duty on provisional basis at such rate or on such value as may be specified by him.

(2) The payment of duty on provisional basis may be allowed, if the assessee executes a bond in proper form with such surety or security in such amount as the Assistant Commissioner of Central Excise or the Deputy Commissioner of Central Excise, as the case may be, deem fit, binding the assessee for payment of difference between the amount of duty as may be finally assessed and the amount of duty provisionally assessed.

(3) The Assistant Commissioner of Central Excise or the Deputy Commissioner of Central Excise, as the case may be, shall pass order for


final assessment, as soon as may be, after the relevant information, as may be required for finalizing the assessment, is available, but within a period not exceeding six months from the date of the communication of the order issued under sub-rule (1):

Provided that the period specified in this sub-rule may, on sufficient cause being shown and the reasons to be recorded in writing, be extended by the Commissioner of Central Excise for a further period not exceeding six months and by the Chief Commissioner of Central Excise for such further period as he may deem fit.

(4) The assessee shall be liable to pay interest on any amount payable to Central Government, consequent to order for final assessment under sub-rule (3), at the rate of twenty four percent per annum from the first day of the month succeeding the month for which such amount is determined, till the date of payment thereof.

(5) Where the assessee is entitled to a refund consequent to order for final assessment under sub-rule (3), subject to sub-rule (6), there shall be paid an interest on such refund at the rate of fifteen percent per annum from the first day of the month succeeding the month for which such refund is determined, till the date of refund.

(6) Any amount of refund determined under sub-rule (3) shall be credited to the Consumer Welfare Fund:

Provided the amount of refund, instead of being credited to the Fund, be paid to the applicant, if such amount is relatable to-

a. The duty of excise paid by the manufacturer, if he had not passed on the incidence of such duty to any other person, or

b. The duty of excise borne by the buyer, if he had not passed on the incidence of such duty to any other person.

Remarks:

(i) How to finalized the assessment:- Once an assessment is provisional, if the duty assessed is more than the duty determined and paid by the assessee, the assessee has to pay the deficiency after the receipt of order. If the duty on final assessment payable by the assessee is less than what he has actually paid; the assessee is entitled to refund. No question of any show cause notice under section 11A arises at that stage. It is only whenever after final assessment and payment of duties, it is found that there has been a short levy or non - levy of duty, the Excise Officer is empowered to take proceedings under section 11A within the period of limitation after issuing a show cause notice. In such a case, limitation period will run from the date of final assessment – SARAI KELLA GLASS WORKS PVT. LTD. Vs CCE 1997 (91) ELT 497 (SC)


and while finalizing the assessment, the assessee is to make whatever enquiries he considers necessary and to call for and examine whatever documents he considers relevant. The Assistant Commissioner is entitled to complete the assessment as he thinks fit – UOI Vs TATA ENGINEERING & LOCOMOTIVE CO. LTD. 1997 (96) ELT 209 (SC).

(ii) Effect of provisional assessment:- Once an assessment is provisional for any reason, it is provisional for all purposes – CCE Vs INDIA TYRE & RUBBER CO. LTD. 1997 (94) ELT 495 (MAD), WIPRO LTD Vs CCE 1998 (100) ELT 522 (T), any refund of excess duty or any payment of short paid duty will have to follow and crystallize only on the finalization of the assessment – SALICA ELECTRIC LTD. Vs CC 1998 (98) ELT 561 (T) – see also SAMRAT INTERNATIONAL (P) LTD Vs CCE 1992 (58) ELT 561 (SC) & CCE Vs INDIAN OIL CORP. LTD. 2002 (141) ELT 334 (Mad.).

(iii) Service of show cause notice:-In the case of provisional assessment, demand raised by cyclostyled letter is not permissible- C.M. RAJGARHI Vs C.C. 1993 (T). In Asian Paints (India) Ltd. Vs CCE 1990 (45) ELT 185 (Tribunal), it was held that merely because an order finalizing the provisional assessment passed by the A. C. had not been accepted by both sides and matter was taken up before C.C.&C.E. (Appeals), it does not cease to be a finalization of proceeding initiated under Rule 7. It is an order assessed by a competent and proper officer finalizing the assessment and demanding a specified amount being short payment as a result of finalization of assessment. Even if the assessment was provisional; a Show Cause Notice must be served upon – CCE Vs I.T.C. LTD 1994 (71) ELT – 324 (SC). The Commissioner is competent to exercise the powers of the Assistant Commissioner – CCE Vs THERMAX (P) LTD. 1994 (70) ELT 247 (T).

(iv) Who shall finalize the assessment:- Once the assessment is provisional, the Assistant Commissioner alone is competent to finalize the same once started – SRF LTD Vs CCE 1998 (103) ELT 369 (T) [see also DCM DATA PRODUCTS LTD 1993 (66) ELT 635 (T-SB). However, invoking sec. 12 E of the Central Excise Act, 1944, the Commissioner of Central Excise in jurisdiction may also finalized the assessment The Commissioner is competent to exercise the power of the Assistant Commissioner – CCE Vs. THER MAX (P) LTD. 1994(70) ELT-247 (T).

(v) When tax is paid under protest:- When the payment is under protest, the same will have to be deemed to be payment made under the provisional assessment of the goods until the finalization made by the Assistant Commissioner – CCE Vs PIDILITE INDUSTRIES LTD. 1998 (101) ELT 693 (T), CCE Vs MILES INDIA LTD. 1993 (68)-ELT 694 (T), ASIAN PAINTS (INDIA) LTD Vs CCE 1990 (45) ELT- 185 (T)

(vi) Assessment is based on actual figures:-While finalizing the assessment, the actual figures must be considered irrespective of


whether actual figures are less or more than the provisional figures – GEEP INDUSTRIAL SYNDICATE Vs CCE 1998(101) ELT 665 (T).

In fact, the process of finalization may ultimately result in either refund or demand depending upon the facts and circumstances of each case, and that a particular sum is due cannot be simply presumed. If the authorities below did not have access to the documents for whatever reasons, then it is clear that they could not have arrived at the right figure, and the action is ab-initio erroneous – PROJECTS DEVELOPMENT INDIA LTD. Vs CC 1993 (65) ELT 611 (T)

(vii) Assessment to be finalized as a whole but not in piecemeal. Finalization of provisional assessment is to be in respect of all issues and not in piecemeal:- The fact that the issue may be at different stages before different authorities is a creation of the authorities action and they cannot take advantage of their own action in the [fate] of the settled position of the law – ITC LTD. Vs CCE 1998 (102) ELT 660 (T).

(viii) Stage of issuing show cause notice:-In case of provisional assessment, under section 11A, the show cause notice can only be issued after finalization of the assessment – SERAI KELLA GLASS WORKS PVT. LTD. Vs CCE 1997 (91) ELT 497 (SC), and any short levied, non-levied or erroneously refunded could only be found after finalization of such assessment – 1997 (91) ELT 497 (SC). Since the assessment is provisional, till the final order, any demand notice is pre-mature - A.SANAND & SONS Vs. CCE 2000 (119) ELT 683(T).

(ix) When assessment is re-opened, it must be reopened as a whole:- When an assessment is reopened by way of issuing a demand notice, it must always be open to the assessee to point out any error committed in original determination of assessable value. If such errors are pointed out, the authority, whose function is to compute the correct assessable value, and duty, and the correct amount of short levied duty there of must take cognizance. DECORA CERAMICS PVT. LTD. Vs C.C.E. 1998 (100) ELT 297 (T).

(x) When the demand is time barred:- To prove that the demand was time barred in a writ petition, it must be proved that the assessment had been made – SHRI VIVEKANAND MILLS LTD. Vs UOI 1999 (109) ELT 32 (SC).

(xi) Refund of tax paid under protest:- Refund of duty paid under ‘Protest’ not hit by the bar of unjust enrichment. Recoveries or refunds consequence upon final determination of liability not to be governed by sections 11A and 11B of the Central Excise Act, 1944 – SINKHAI SYNTHETICS & CHEMICALS PVT. LTD Vs CCE 2002 (143) ELT 17 (SC).


If duty has been paid under protest by a manufacturer, then his purchaser (distributor) is not entitled to claim refund of “on account “ payment made under protest by the manufacturer without complying with Section 11B – 2004 (160) ELT 3 (S.C) in CCE Vs. ALLIED PHOTOGRAPHICS INDIA LTD..

The authority has no right to reject the protest letter of the assessee- 2004 (170) ELT 440 (Tri.) – KIRAN PROCEDDORS PVT. LTD. vs. CCE. Further held 2004 (170) ELT A235 (S.C) that refund claim of duty paid under protect is not covered by Section 11A or 11B and hence not by the doctrine of unjust enrichment. There is no rule or provision by which protest could be lodged by a purchaser. The legislature has so worded the provision of Section 11B (1) that if duty is paid by a manufacturer under protest, then the limitation of one year will not apply even to a claim for refund by the purchaser – 2003 (154) ELT 350 (SC) in NATIONAL WINDER Vs. CCE.

(xii) The order is an appellable one:-The order of provisional assessment is an appellable order and the appropriate course is to file an appeal against such order before the higher appellate authority – JAMNA DAS DESAI Vs C. L. NANFIA, AIR 1965 GUJ 215, ORIENT PAPER AND INDUSTRIES LTD Vs SUPDT. C.E. 1996 (82) ELT 192 (ORI).

5.5.3 Recovery of Service Tax:-

The Finance (No. 2 ) Act, 2004 has replaced the provision 5 of sec. 73 to bring the same into the lines of sec. 11 A of the Central Excise Act, 1944 which is reproduced as follows:-

(1) Recovery of service tax not levied or paid, short levied or short-paid or erroneously refunded:-Where any service tax has not been levied or paid or has been short – levied or short –paid or erroneously refunded, the Assistant Commissioner of Central Excise or, as the case may be, the Deputy Commissioner of Central Excise may, within one year from the relevant date, serve notice on the person chargeable with the service tax which has not been levied or paid or which has been short –levied or short-paid or the person to whom such tax refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice.Provided that where any service tax has not been levied or paid or has been short-levied or short –paid or erroneously refunded by reason of –

(a) fraud; or (b) collusion ;or (c) wil ful mis-statement; or (d) suppression of facts; or(e) contravention of any of the provisions of this Chapter or of the rules

made there under with intent to evade payment of service tax,


by the person chargeable with the service tax or his agent, the provisions of this sub-section shall have effect, as if, for the words “one year”, the words” five years” had been substituted.

Explanation – Where the service of the notice is stayed by an order of a court, the period of such stay shall be excluded in computing the aforesaid period of one year or five years, as the case may be.

(1A) Where any service tax has not been levied or paid or has been short-levied or shortpaid or erroneously refunded, by reason of fraud, collusion or any wilful mis-statement or suppression of facts, or contravention of any of the provisions of this Chapter or the rules made thereunder, with intent to evade payment of service tax, by such person or his agent, to whom a notice is served under the proviso to sub-section (1) by the Central Excise Officer, such person or agent may pay service tax in full or in part as may be accepted by him, and the interest payable thereon under section 75 and penalty equal to twenty-five percent of the service tax specified in the notice or the service tax so accepted by such person within thirty days of the receipt of the notice.”;

(2) The Assistant Commissioner of Central Excise or, as the case may be, the Deputy Commissioner of Central Excise 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 thereupon such person shall pay the amount so determined.

“Provided that where such person has paid the service tax in full together with interest and penalty under sub-section (1A), the proceedings in respect of such person and other persons to whom notices are served under sub-section (1) shall be deemed to be concluded:

Provided further that where such person has paid service tax in part along with interest and

Penalty under sub-section (1A), the Central Excise Officer shall determine the amount of service tax or interest not being in excess of the amount partly due from such person.”;

(3) Where any service tax has not been levied or paid or has been short –levied or short –paid or erroneously refunded, the person chargeable with the service tax, or the person to whom such tax refund has erroneously been made, may pay the amount of such service tax, chargeable or erroneously refunded, on the basis of his own ascertainment thereof, or on the basis of tax ascertained by a Central Excise Officer before service of notice on him under sub-section (1) in respect of such service tax, and inform the Assistant Commissioner of Central Excise or, as the case may be, the Deputy Commissioner of Central Excise of such payment in writing, who, on receipt of such information shall not serve any notice under sub-section (1) in respect of the amount so paid :


Provided that the Assistant Commissioner of Central Excise or, as the case may be, the Deputy Commissioner of Central Excise may determine the amount of short payment of service tax or erroneously refunded service tax, if any which in his opinion has not been paid by such person and, then, the Assistant Commissioner of Central Excise or, as the case may be the Deputy Commissioner of Central Excise shall proceed to recover such amount in the manner specified in this section; and the period of “one year” referred to in sub-section (1) shall be counted from the date of receipt of such information of payment.

Explanation – for the removal of doubts, it is hereby declared that the interest under section 75 shall be payable on the amount paid by the person under this sub-section and also on the amount of short payment of service tax erroneously refunded services tax, if any as may be determined by the Assistant Commissioner of Central Excise or, as the case may be the Deputy Commissioner of Central Excise, but for this sub-section.

(4) Nothing contained in sub-section (3) shall apply to a case where any service tax has not been levied or paid or has been short – levied or short-paid or erroneously refunded by reason of –

(a) fraud; or (b) collusion; or (c) wilful mis-statement; or (d) suppression of facts; or (e) contravention of any of the provisions of this Chapter or of the rules

made there under with intent to evade payment of service tax.

(5) The provisions of sub-section (3) shall not apply to any case where the service tax had become payable or ought to have been paid before the 14 th day of May 2003.

(6) For the purposes of this section, “relevant date” means,-

(i) in the case of taxable service in respect of which service tax has not been levied or paid or has been short levied or short paid –

(a) where under the rules made under this Chapter, a periodical return, showing particulars of service tax paid during the period to which the said return relates, is to be filed by an assessee, the date on which such return is so filed;

(b) where no periodical return as aforesaid is filed, the last date on which such return is to be filed under the said rules;

(c) in any case, the date on which the service tax is to be paid under this Chapter or the rules made thereunder;


(ii) in case where the service tax is provisionally assessed under this Chapter or the rules made thereunder, the date of adjustment of the service tax after the final assessment there of;

(iii) in a case where any sum, relating to service tax, has erroneously been refunded, the date of such refund;

Analysis:-

If there is a mistake, the same could not be equalized with the misrepresentation-BHARAT ELECTRONIC LTD Vs. CCE 2004 (165) ELT-485(SC) unless there is some positive act- EASLAND COMBINES COIMBATORE Vs. THE COLLECTOR OF CENTRAL EXCISE, 2003(152) ELT 39(SC) which means mere failure to pay tax or take registration [ which is not due to any fraud, collusion or willful mis-statement or suppression of fact or contravention of any provision] is not sufficient to attract the extended period of limitation. However mistake of fact is difference from misrepresentation – ICHALKARANJI MACHINE CENTRE PVT LTD Vs CCC 2004(174) ELT 417(SC); or where the violation was with sole intention to evade tax- SONY INDIA LTD Vs. EEC 2004(167) ELT 385(SC). When there is a difference of opinion, extended period of limitation is not applicable – UGAM CHAND BHANDARI Vs. CCE 2004(167) ELT 491 (SC).Where on identical issue, there was a show cause notice issued earlier which had been dropped an extended period is not applicable – HYDERABAD POLYMERS (P) LTD Vs. CCE 2004(166) ELT –151(SC).

Where the material fact was never disclosed in classification list or in any correspondence on subject where as it was disclosed in respect of other units, an extended period is applicable- CCE Vs HINDUSTHAN ZINC LTD 2004 (166)ELT-145 (SC). Where the applicability of limitation was never contested by the assessee at initial stage but the matter was decided on merit, the matter shall not be deemed to be barred by limitation- CC Vs. B.V.JEWELS 2004(172) ELT-3(SC).

Where the duty or tax has been paid before the effect of the show cause notice, it would not make a difference whether such duty or tax was paid before or after intervention by the departmental officers in any form or manner, interest or penalty is not leviable – AL FALAH (EXPORTS) Vs. CCE 2006(198) ELT-343 (T-LB); CCC Vs. MACHINO MONTELL (I) LTD 2004 (168) ELT –466(T-LB).

And at last where there is a suppression of fact or not is a question to be decided on facts of each case- CCE Vs. MAHINDRA & MAHINDRA LTD 2004(171) ELT –159(SC), though for detailed analysis and scope, the issue has been referred before the larger bench [see(171) ELT-159 (SC)] in reference to the CENVAT Credit. While, any mistake on record could be corrected as soon as brought to the notice.

For detailed analysis of the above provision, please see an Article of the author “DEMAND OF CUSTOMS DUTY “ published in the Chartered Accountant – Oct, 2002 issue.].


5.5.4 Sec.73c as inserted by sec.68 (E) of the Finance Act, 2006 is as follows:- 73C. Provisional attachment to protect revenue in certain cases:-

(1) Where, during the pendency of any proceeding under section 73 or section 73A, the Central Excise Officer is of the opinion that for the purpose of protecting the interests of revenue, it is necessary so to do, he may, with the previous approval of the Commissioner of Central Excise, by order in writing, attach provisionally any property belonging to the person on whom notice is served under sub-section (1) of section 73 or sub-section (3) of section 73A, as the case may be, in such manner as may be prescribed.

(2) Every such provisional attachment shall cease to have effect after the expiry of a period of six months from the date of the order made under sub-section (1):

Provided that the Chief Commissioner of Central Excise may, for reasons to be recorded in writing, extend the aforesaid period by such further period or periods as he thinks fit, so, however, that the total period of extension shall not in any case exceed two years.


5.6. APPEALS

5.6.1 Appeal to the Commissioner (Appeals):-

As per section 85 of the Finance Act, 1994 (as amended by Finance Act, 2001), an assessee can file an appeal to the Commissioner of Central Excise (Appeals) against any assessment order passed by the Assistant / Deputy Commissioner under section 73 or denying his liability to be assessed under Service Tax, or against order levying interest or penalty or denying any refund of service tax.

An appeal to the Commissioner of Central Excise (Appeals) shall be filed in prescribed form within 3 months from the receipt of the order in question. However, if the Commissioner (Appeals) feels that Appellant was prevented by sufficient cause from filing the appeal within the aforesaid period of 3 months, he may extend that said period by a further period of three months.

The Commissioner of Central Excise (Appeals) shall hear the appeal and pass such orders as he thinks fit and he may enhance the service tax, interest or penalty or denying any refund of service tax. The powers and the procedure to decide the appeal is same as given under the Central Excise Act, 1944.

The Finance (No.2) Act, 2004:-

Sec. 35 of the Central Excise Act, 1944 has provided that any adjournment during hearing may be give only after recording the reasons and the adjournment given shall not be more than three times.

For the provisions under the Central Excise Act, 1944, see Part III of this Book.

5.6.2 Appeal to the Appellate Tribunal:-

As per Section 86 of the Finance Act, 1994 (as amended by Finance Act, 2001), any person aggrieved by an order passed by the Commissioner of Central Excise under Section 84 or an appellate order passed by the Commissioner of Central Excise (Appeals) under Section 85, may appeal to the Customs, Excise & Service Tax Appellate Tribunal (CESTAT).

Where the Committee of Chief Commissions or the Committee of Commissioners objects to any order passed by the Commissioner of Central Excise in relation to the service tax, it may direct the Commissioner of Central Excise to appeal to the Tribunal. Similarly, if the Commissioner of Central Excise objects any appellate order passed by the Commissioner of Central Excise (Appeals), he may direct the Assistant / Deputy Commissioner to file an appeal to the Appellate Tribunal against such order.

Respondent has a right to file cross objection with 45 days from the date of receipt of Notice of filing the appeal from the Tribunal or such extended period as permitted by the Tribunal and the cross memorandum shall be disposed off along with the appeal.


An appeal to the Tribunal shall be filed within 3 months. The Appellate Tribunal can condone the delay in filing the appeal or cross objection on sufficient cause being shown.

Appeal to the Tribunal shall be in prescribed form and has to be accompanied with a fee as prescribed.

The Appellate Tribunal shall hear the appeal relating to the Service Tax subject to the provisions of Section 86 of the Finance Act, 1994 and shall exercise the same power and follow the same procedure as relating to hearing of appeals under the Central Excise Act, 1944.

5.6.3 The Finance (No. 2) Act, 2004:- Fee structure:-

Now the fee structure payable shall be as follows:-

Where the amount of service tax, interest demanded and penalty levied is rupees Five lacs or less – Rs. One thousand.

Where the amount of service tax, interest demanded and penalty levied is between rupees Five lacs to Fifty lacs - Rs. Five thousand.

Where the amount of service tax, interest demanded and penalty levied is more than rupees Fifty lakes - Rs. Ten thousand.

[If the amount on all three accounts imposed is more than rupees Fifty lacs, but the amount for which an appeal relates is less than rupees Five lacs, the fee payable shall be rupees One thousand only, because the language employed under the amended provision is “………the amount of service tax and interest to which the appeal relates…”, but not the amount of service tax, interest demanded, and penalty imposed.]

And in case of any application for stay or rectification of mistake or for any other purpose or for restoration of an appeal or an application, the fee shall be to the extent of rupees five hundred except when such application has been filed by the Revenue.

Sec 35 C of the Central Excise Act, 1944 has also been amended to provide that any adjournment at any stage of hearing of an appeal shall be given only after recording the reasons, which shall not be more than three times.

For the provisions given under the Central Excise Act, 1944 see Part III of this Book.

5.6.4 Right of appeal:-


Right of Appeal is a creation of statute. But in exercise of such right, there is no inherent or constitutional right to file an appeal. While granting such right, legislature can impose any condition. It was observed in Anant Mills Co. Ltd. v. State of Gujarat (AIR 1976 S.C. 1234) and State of Bombay v. M/s. Supreme General Films Exchange Ltd. (AIR 1960 S.C. 980), that legislature can, while granting right of appeal, lay down a condition for deposit of tax as it is creation of statute. Legislature can also put restriction on it so as to curtail it. There is nothing wrong if under same statute, a right of Appeal is given and then some restrictions are put over it. Right to appeal is a substantive right and not a mere matter of procedure. But such right is neither an absolute right nor an ingredient of natural justice. It must be conferred by statute and can be exercised only as permitted by statute.

Any appeal is a creature of statute. The right to appeal has to be exercised by persons permitted by the statute to persons subject to the conditions regarding the filling of such appeals. Whether any right of appeal is conferred on anyone against the order passed under the Act in the hierarchy of proceedings before the authorities has to be judged from the statutory settings of the Act and not dehors them – NORTHERN PLASTICS LTD. VS. HINDUSTAN PHOTOFILMS MFG. CO. LTD. 1997 (91) ELT- 502 (SC).

Since without a statutory provision creating the right of appeal the person aggrieved is not entitled to file an appeal. However, while granting the right of appeal, the legislature may impose conditions for the exercise of such right. It is permissible to enact a law that no appeal shall lie against an order unless the conditions specified shall be fulfilled. Such conditions merely regulate the exercise of the right of appeal so that a recalcitrant party does not abuse the same and there is no difficulty in the enforcement of the order appealed against in case the appeal is dismissed. It is open to the legislature to impose an accompanying liability upon a party upon whom legal right is conferred or to prescribe conditions for the exercise of the right. Any requirement for discharge of that liability or the fulfillment of that condition in case the party concerned seeks to avail of the said right is a valid piece of legislation, and we can discern no contravention of Article 14 of the Constitution in it – see THE ANANT MILLS CO. LTD. ELT Vs. STATE OF GUJARAT & OTHERS, AIR 1975 SC 1234.

5.6.5 The term “person aggrieved”:-

It is true that the phrase “person aggrieved” is wider than the phrase “party aggrieved” but in terms of the entire context and scheme of the Act, it could be said that under normal circumstances, only the parties to the proceedings before the adjudicating authority can prefer such an appeal and not other wise.

The term “person aggrieved” does not really mean a man who is disappointed of a benefit, which he might have received if some other order had been made. A person aggrieved must be a man who has suffered a legal grievance, a man against whom a decision has been pronounced which has wrongfully deprived him of something, or wrongfully affected his title to something – EXPARTE SIDEBOTHAM IN RE SIDEBOTHAM 14 Ch D 458.


Generally speaking, a person can be said to be aggrieved by an order, which is to his detriment, pecuniary or otherwise or causes him some prejudice in some form or other. A person who is not a party to litigation has no right to appeal merely because the judgment or order contains some adverse remarks against him. But it has been held in a number of cases that a person who is not a party to a suit may prefer an appeal with the leave of the appellate court and such leave would not be refused where the judgment would be binding on him under Explanation 6 to Section 11 of the Code of Civil Procedure. We find ourselves unable to take the view that because a person has been given notice of some proceedings wherein he is given a right to appear and make his submissions, he should without more have a right of appeal from an order rejecting his contentions or submissions. An appeal is a creature of statute and if a statute expressly gives a person a right to appeal, the matter rests there-ADI PHEROZSHAH GANDHI Vs. H.M.SEERVAI, ADVOCATE GENERAL OF MAHARASHTRA 1970 (2) SCC 484.

In Collin’s English Dictionary, the word `aggrieved` has been defined to mean “ to ensure unjustly especially by infringing a person’s legal rights”, in Webster’s Comprehensive Dictionary, International Edition at page 28, aggrieved person is defined to mean “subjected to ill treatment, feeling an injury or injustice. Injured, as by legal decision adversely infringing upon ones right” In Stroud’s judicial dictionary, 5th Edn. , Vol. 1, pages 83-84, person aggrieved means “person injured or damaged in a legal sense”. In Black Law’s Dictionary, 6 th Edn. At page 65, aggrieved has been defined to mean “having suffered loss or injury; damnified; injured” and aggrieved person has been defined to mean: “one whose legal right is invaded by an act complained of, or whose pecuniary interest is directly and adversely affected by a decree or judgment. One whose right of property may be established or divested. The word `aggrieved` refers to a substantial grievance, a denial of some personal, pecuniary or property right, or the imposition upon a party of a burden or obligation.

Lord Denning, in the notable case of Attorney General Of Gambia Vs Pierra Saarr N’Jie, 1961 AC 617, had spoken that even though the words “person Aggrieved” are of wider import and should not be subjected to restrictive interpretation, of course, they do not include mere a busybody who is interfering in things which do not concern him”.

In a decision of the Constitution Bench (Seven Judges) of the Apex Court rendered in Council of Maharashtra V. M.V. Dabholkar- (1975) 2 SCC 702:AIR 1975 SC 2092, A.N. Ray, C.J. on behalf of H.R.Khanna, K.K.Mathew, A.C.Gupta and S. Murtaza Fazal Ali, held as follows:-

“the words “person aggrieved” are found in several statutes. The meaning of the words “person aggrieved” will have to be ascertained with reference to the purpose and the provisions of the statute. Sometimes, it is said that the words” person aggrieved” correspond to the requirement of locus standi which arises in relation to the judicial remedies. Where a right of appeal to courts against an administrative of judicial decision is created by a statute,


the right is invariably confined to a person aggrieved or a person who claims to be a person aggrieved or a person who claims to be aggrieved. The meaning of the words “a person aggrieved” may vary according to the context of the statute. One of the meanings is that a person will be held to be aggrieved by a decision if that decision is materially adverse to him. Normally, one is required to establish that one has been denied or deprived of something to which one is legally entitled in order to make one “a person aggrieved”. Again a person is aggrieved if a legal burden is imposed on him. The meanings of the words “a person aggrieved” is sometimes given a restricted meaning in certain statutes which provides remedies for the protection of private legal rights. The restricted meaning requires denial or deprivation of legal rights.”

(emphasis supplied)

In the above said decision of the Apex Court, Justice Beg, Concurring with the majority view, held that to claim locus standi and as the person affected by the results of a proceeding, there should necessarily be lis or a dispute. Lis implies the conception of an issue joined between two parties.

In Thammanna v. K. Veera Reddy –(1980) 4 SCC 62 : AIR 1981 SC 116, the Apex Court, while defining the meaning of the expression “person aggrieved”, held as follows :

“Although the meaning of the expression “person aggrieved” may vary according to the context of the statue and the facts of the case, nevertheless, normally, a “person aggrieved” must be a man who has suffered a legal grievance, a man against whom a decision has been pronounced which has wrongfully deprived him of something, or wrongfully affected his title to something.” (emphasis supplied)

Further, in Krapa Rangiah v. Special Dy. Collector, Land Acquisition [(1982) 2 SCC 374], the Apex Court held that the person aggrieved would mean a person who has suffered a legal injury or one who has been unjustly deprived or denied of something, which he would be interested to obtain in the usual course or similar benefits or advantage or results in wrongful affectation of his title to compensation.

The interpretation of the expression “any person aggrieved”, as employed in section 129A of the Customs Act, came up for consideration before the Apex Court in Northern Plastics Ltd. V. Hindustan Photo Films Mfg. Co. Ltd. [1997 (91) E.L.T. 502]. The Apex Court in the said judgment held that the appeal as provided under Section 128 and 129A of the Act is a creature of the statute. The right to appeal has to be exercised only by persons permitted by the statute to prefer an appeal subject to the conditions regarding the filing of such an appeal. Therefore, the wider concept of locus standi for filing a writ petition both under Articles 32 and 226 of the Constitution of India, is not importable for deciding the right of appeal under the statutory provisions, viz., Sections 128, 129A and 130E of the Act. It is further held that the expression “person aggrieved” employed in Section 129A of the Act, even though has got a wider connotation


than the expression “party aggrieved”, the expression “person aggrieved” has to be constructed only in the context of the statutory scheme, viz., the scheme of the Customs Act, Particularly in the context of Section 129A of the Act, wherein the right of appeal is confined to the parties to the proceedings before the adjudicating authority and that a third party could earn a locus standi to file an appeal as a person aggrieved only if it is able to show that it has a direct legal interest in the goods belonged to it and not to the purported importer. It is also held that the phrase ‘person aggrieved’ used in Sections 128 and 129A of the Act, do not really mean a man who is disappointed of a benefit which he might have received if some other order had been made and it must be a man who has suffered a legal grievance, a man against whom a decision has been pronounced which has wrongfully deprived him of something, or wrongfully affected his title to something. The Apex Court thus held as follows:-

“……..a statutory remedy is provided to the Collector of Customs in connection with orders of the Appellate Collector of Customs passed immediately before the appointed day and also in connection with the orders passed by Collector of Customs under Section 128A, to direct proper officer to appeal on his behalf as Central Board of Excise and Customs against the orders of Collectors of Customs as provided by Section 129DA(1) as well as on the Central Government under contingencies contemplated by Section 129DD(1). These are the only statutory modes contemplated by the Act by resort to which the orders of Collector (Customs) could be brought in challenge before higher statutory authorities including the CEGAT. In the light of this statutory scheme, therefore, it is not possible to agree with the contention of learned Counsel for the contesting respondents that sub-section (1) of Section 129A entitles any and every person feeling aggrieved by the decision or order of the Collector of Customs as an adjudicating authority, to prefer statutory appeal to the Appellate Tribunal. Neither the Central Government, through Industries Department, nor the rival company or industry operating in the same field as the importer can as a matter or right prefer an appeal as ‘person aggrieved’. It is true that the phrase “person aggrieved” is wider than the phrase “party aggrieved”. But in the entire context of the statutory scheme especially sub-section (3) of section 129A it has to be held that only the parties to the proceedings before the adjudicating authority Collector of Customs could prefer such an appeal to the CEGAT and the adjudicating authority under Section 122A can prefer such an appeal only when directed by the Board under Section 129D (1) and not otherwise. It is easy to visualize that even a third party may get legitimately aggrieved by the order of the Collector of Customs being the adjudicating authority if it is contended by such a third party that the goods imported really belonged to it and not to the purported imported or that he had financed the same and, therefore, in substance he was interested in the goods and consequently the release order in favour of the purported imported was prone to create a legally injury to such a third party which is not actually arraigned as a party before the adjudicating authority and was not heard by it. Under such circumstances, such a third party might perhaps be treated to be legally aggrieved by the order of the collector of customs as an adjudicating authority and may legitimately prefer an appeal to the


CEGAT as a ‘person aggrieved’. That is the reason why the Legislature in its wisdom has used the phrase ‘any person aggrieved’ by the order of the Collector of customs as adjudicating authority in Section 129A (1). But in order to earn a locus standi as ‘person aggrieved’ other than the aggrieved party before the Collector of Customs as an adjudicating authority it must be shown that such a person aggrieved being third party has a direct legal interest in the goods involved in the adjudicating process. It cannot be a general public interest or interest of a business rival as is being projected by the contesting respondent before us.”

The Department also has a reciprocal right of appeal. Right of appeal is confined only to parties to the proceedings before the adjudicating authority and a third party could earn a locus standi to file appeal as person aggrieved only if it is able to show that it has a direct legal interest in the issues involved in adjudication – Northern Plastics Ltd. Vs. Hindustan Photo Films Mfg. Co. Ltd. - 1997 (91) E.L.T. 502 (SC). However, once the assessee withdrew their appeal, the appeal filed by the Department is not maintainable – CCE Vs M.R.F. LTD 2005 (180) ELT –310(SC).

5.6.6 Appearance of Business Rival:-

It shall be unfair for the Tribunal to allow business rival of the appellant to appear as intervener – NORTHERN PLASTIC LTD. Vs. CC & CE 1998 (101) ELT 549 (SC). The Court can in appropriate cases, in an appeal filed by the opposite party, permit the respondent to re-canvass for reversal of an adverse finding in the impugned order (the operative part of which is in respondent’s favour) but should not permit the respondent to put forth absolutely new grounds for it – J.K. COTTON SPG. & WVG. MILLS CO. LTD. Vs. CCE, 1998 (99) ELT 8 (SC).

5.6.7 Condonation of Delay:-

Though there is a time limit to file an appeal along with an extended period to condone the delay on the satisfaction of the Appellate Authority, but this will not preclude the Appellate Authority to have the appeal filed beyond the period of such specified extended days if sufficient cause is shown for delay in filing the appeal Sec. 35 of the Central Excise Act, 1944 [also sec. 85 & 86 of the Finance Act 1994] does not indicate that sec. 29 (2) and sec. 5 of the Limitation Act, 1963 have been excluded expressly by the provisions of the said Act Sec. 5 read with sec. 29(2) of the Act 1963 are applicable in the case where there is a time limit prescribed by the specified Act.- see EUREKA FORBES LTD. Vs U.O.I. 1998 (98) E.L.T. 591 (ALL), JAI HIND BOTTLING CO. (P) LTD Vs CC&CE (APPEALS) 2002 (146) E.L.T. 273 (ALL).

So far as the discretion to condone the delay is concerned, there should be a pragmatic approach. A distinction must be made between a case, where the delay is inordinate and a case where the delay is of few days. Whereas in the former case, the consideration of prejudice to the other side will be a relevant


factor, so the case calls for a more cautious approach but in the later case no such consideration may arise and such a case deserves a liberal approach. No hard and fast rule can be laid down in this regard. The authority has to exercise the discretion on the basis of facts of each case keeping in mind that in construing the expression “sufficient cause”, the principle of advancing substantial justice is of prime importance and as such it requires liberal construction – STATE OF WEST BENGAL Vs. ADMINISTRATOR, HOWRAH MUNICIPALITY 1972 AIR SC 749; SMT. SANDHYA RANI SARKAR Vs. SMT SUDHA RANI DEVI, 1978 AIR SC 537; MUNICIPAL CORPN. GWALIOR Vs. RAM CHARAN (D) by LRS 2002 (142) ELT 275 (SC).

So far as the delay in filing of appeal from the Government is concerned, some latitude is permissible due to procedural red tape in Government functioning and also on account that if appeal is dismissed, public interest suffers. Through standard of proof of sufficient cause is not different in case of State and private litigant, they can not be put on same footing as individual would always be quicker in taking decision – STATE OF NAGALAND Vs. LIPOK A O 2005(183) ELT – 337 (SC).

The expression “sufficient cause” should, therefore be considered with pragmatism in justice oriented approach rather than the technical detection of sufficient cause for explaining every day’s delay – SATE OF HARAYANA Vs. CHANDRA MANI – 2002 (143) ELT- 249 (SC) – whether or not there is sufficient cause for condonation of delay is a question of fact depending upon the facts and circumstances of the particular case – STATE OF KERALA Vs. E.K. KURIYIRE (1981) Supp. S.C.C 72; SMT. MILAVI DEVI Vs. DINA NATH, 1982 (3) SCC 366. Ultimately, the issue is whether the mistake or delay was bona-fide or was merely a devise to cover an ulterior purpose- LALA MATA DIN Vs. A. NARAYANAN 1970 (2) SCR 90; INDIA INSURANCE CO. LTD VS. NIRMALA DEVI, 1979 (3) SCR 694. In showing sufficient cause to condone the delay, it is not required that the appellant / applicant has to explain whole of the period between the date of judgment till the date of filing the appeal. It is sufficient the delay caused by the period between the last of the dates of limitation and the date on which, the appeal / application is actually filed – RAMLAL, MOTILAL & CHHOTELAL Vs. REWA COALFIELDS LTD (1962) 2 SCR 762.Length of delay is immaterial but its shortness is a circumstance in exercise of discretion by the Appellate Authority. Pragmatic justice oriented approach is required and not the technical detection of explanation of every days delay. Case should be heard on merits unless it is hopelessly time barred-STATE OF NAGALAND Vs. LIPOK AO-2005 (183) ELT 337(SC). There shall not be an injustice – oriented approach adopted by the court – SMT PRABHA VS. RAM PRAKASH KALRA (1987) SUPP. SCC 338. And accordingly, it requires a liberal construction so as to advance substantial justice and generally delays in preferring the appeals are required to be condoned in the interest of justice where no gross negligence or deliberate in action or lack of bona-fides is immutable to the party to seeking condonation of delay- G.RAMEGOWDA, MAJOR Vs. SPL. LAND ACOUISITION OFFICER, BANGLORE 1988 (2) SCC 142. However when the party has come with a false plea to get rid of the bar of limitation, the court should not encourage such


person by condoning the delay and result in the bar of limitation pleaded by the opposite party – BINOD BIHARI SINGH Vs. UOI 1993 (I) SCC 572.

Now where the Commissioner (Appeals) dismissed the appeal as time barred, the Tribunal has no power either to direct the Commissioner (Appeals) to condone delay and hear a case on merits or condone delay itself – RAYAMAN SHOE CO. Vs. CCE 2003 (151) ELT – 551 (T), However, in SUBURAJ COTTON MILLS Vs. CCE 2003 (160) ELT – 1096 (T), the matter was remanded to condone the delay by the Commissioner (Appeal). In such a situation, merit of the case should also be considered – AJYA ENGINEERING WORKS LTD Vs. GOI 1997 (90) ELT 19 (SC).

In case where appeal has been delivered to the Indian Postal Authority on or before due date but the post was delivered after due date, the delay has been condoned – CCE Vs. L&T LTD. 1999 (112) ELT 1004(T); PAPER MACHINE WIRE INDS. Vs. C.C.E. 1998 (99) ELT 106 (T) because date of posting material by Indian Postal Authorities for dispatch is the date of filing the document.- VANIVILAS CO-OPERATIVE SUGAR FACTORY LTD Vs U.O.I. 1983 (12) E.L.T. 290 (KARN.), NARAIN DAS BALLADHRAN PARMAR & ANR Vs U.O.I. & ORS 1978 (2) E.L.T. –J 695 (GUJ).

5.6.8 Disposal of stay petition:-

The appellate authority should address its mind to the prima facie merits of the appellant’s case and upon being satisfied of the same determine the quantum of deposit taking into consideration the financial hardship and other such relevant factors [Mehsana Dist. Co–Op. Milk pvt. Ltd. Vs UOI – 2003 (154) ELT. 347 (SC)].

Personal hearing, though not mandatory for deciding stay applications should be granted by Commissioner (Appeals), see Packwel Associates Vs. UOI – 1998 (98) ELT 601 (Kar.); ITC Ltd. Vs. CCE – 2001 (127) ELT – 338 (Mad.).

If after passing of the stay order the financial condition of the assessee has further worsened, the assessee can seek modification of the earlier order. But if the assessee cannot make out a case for modification and does not comply with the terms of the stay order within the time limit or extended time limit granted, his appeal is liable to be dismissed just for the said non-compliance. However, before ordering such dismissal, the appellate authority is required to give a final notice to the assessee. An appeal dismissed for such non-compliance can be restored by the Tribunal if the pre-deposit is made, even after a gap of the stipulated period . [Master Recording Co. V. Commissioner – 2000 (125) ELT 1020 (Tribunal)]. Besides cash deposit, pre-deposit can also be made by debiting the Cenvat Account, vide India Casting company v. CEGAT – 1998 (104) ELT 17 (All), Birla Yamaha Ltd. V. Collector – 1996 (83) ELT-396(Tri).


The Appellate Aurthority has power to modify its order within the permissible limits and parameters laid down in the law –MAINA KHEMKA Vs. UOI 2004 (170) ELT-3 (Bom).

5.6.9 Appeal against provisional assessment order:-

Appeal lies against provisional assessment order also [Orient Paper Industries Ltd. Vs. Superintendent – 1996 (82) E.L.T. 192 (Ori); Asian Paints Ltd. Vs. Collector – 1998 (102) E.L.T. 240 (T); Indian Aluminium Cables Vs. Collector – 1989 (41) ELT 688 (T)].

5.6.10 Condition of Pre-deposit & Stay against Recovery:-

Under section 35F of the Central Excise Act, 1944 [in terms of the provisions of sec. 83], the appellant during the pendency of the appeal is required to pre-deposit the duty demanded, and penalty imposed but the Commissioner (Appeals) and the Tribunal have the power to dispense with pre-deposit, fully or partially, in cases of undue hardship. If the assessee has a good prima facie case on merits and / or his financial condition is poor, pre-deposit would constitute undue hardship. Prima facie case does not necessarily mean that one must have a gilt edged case which is bound to succeed but a case which is arguable and fit for trial and consideration - Ruby Rubber Industries v. Commissioner – 1998 (104) ELT 330 (Cal). Undue hardship covers a case where the appellant has a strong prima facie case - Hooghly Mills Co. Ltd. Vs. UOI 1999 (108) ELT 637 (Cal.).

Requirement of deposit of the amount in dispute is a condition precedent for entertaining the appeal and not for filing the appeal. Failure to deposit the amount in question would render the appeal incompetent. While considering an application for grant of stay, the concerned authority has to, inter alia, consider the following aspects:

(a) Whether there is prima facie case in favour of the assessee.(b) the balance of convenience qua deposit or otherwise.(c) Irreparable loss, if any, to be caused in case stay is not granted.(d) Safeguarding of public interest.

In the Asstt. Controller Central Excise, West Bengal v. Dunlop [1985 (19) E.L.T. 22 = AIR 1985 S.C. 330] the Apex Court held that normally four factors for grant of stay order should be kept in view i.e. prima facie case, which by itself is not enough, balance of convenience, possibility of irreparable injury and safeguarding the public interest.

5.6.11 Personal hearing:-

Even though, not mandatory for deciding stay applications, it should be granted by Commissioner (Appeals), In case of demand for duty confirmed in violation of principles of natural justice or where the unit concerned has been declared a sick industry by BIFR, pre-deposit cannot be insisted upon [ Songfroid Remedies


Ltd. v. UOI - 1998 (103) ELT 5 (SC) Tata Davy Ltd. Vs State of Orissa - 1997 (94) ELT 477 (SC)].

No-coercive action could be resorted by the Department during pending of stay –petition Recovery of dues through coercive action is not to be resorted to by Department during pendency of stay application irrespective of the amount involved.

See CBEC Circular No. 788/21/2004 – CX dt. 25-5-2004.

5.6.12 Treatment of amount paid before disposal of appeal:-

Amount deposited during "pending appeal" cannot be retained by the Department once the appeal is disposed of though by remand and de novo adjudication of the matter ordered – Kuil Fireworks (P) Ltd. Vs. Collector 1997 (95) ELT 3 (SC)].

5.6.13 Time Limit to Dispose an Appeal and effect on stay granted by the Appellate Authority:-

As per sec 35 (2A) of the Central Excise Act, 1944 time limit for disposal of appeals by the Appellate Tribunal has been laid down as three year from the date of filing of the appeal, where it is possible to do so but where a stay order has been issued, the final order shall be passed by the Tribunal within 180 days of the stay order, failing which the stay shall stand vacated. This amendment is applicable to stay order passed on or after 11-5-2002. [Kamar cotton Mills Pvt. Ltd. Vs. CCE – 2002 (146) ELT 438 (Tribunal)]. After 180 days, stay on recovery ceases (the Tribunal cannot extend it) but waiver of pre-deposit, being under Section 35F which has not been amended, continues and the appeal cannot be dismissed on the ground of non-deposit – THEMIS PHARMACEUTICALS Vs. CCE. 2003 (157) ELT 569 (T). Tribunal has jurisdiction under its inherent power to grant stay even after expert of 180 days from the date of initial order of stay –2004 (169) ELT- 267 (Tri- LB) – IPCL Vs. CCE. Tribunal can grant such extension on good cause only when delay in disposal of the appeal was attributable to the Tribunal, not to fault of the assessee – 2005 (180) ELT- 434 (SC) – CCE Vs. Kumar Cotton Mills Pvt. Ltd. Second proviso to Section 35C(2A) cannot be construed to means that merely because the initial stay order stood vacated, there can be no fresh stay order; extension of the vacated order also in substance amount to a fresh stay order – 2005 (179) ELT- 385 (ALL.) in CCE Vs. Reliable safety Glass.

5.6.14 Pleading against the Assessee:-

An Appellate authority is not competent to make out in favour of the Revenue, a case, which the Revenue never canvassed (in the show cause notice) and which the assessee was never required to meet. [Reckitt & Colman of India Ltd. Vs. Collector 1996 (88) ELT 641 (SC); Prince Khadi Woolen Handloom Prod. Co-


op. Indl. Society Vs. Collector, 1996 (88) ELT 637 (SC); GTC Industries Ltd. Vs. Collector 1997 (94) ELT 9 (SC); Warner Hindustan Ltd. Vs. Collector 1999 (113) ELT 24 (SC)]. A ground which is not taken in first or second appeal against the assessee by the Revenue, cannot be taken up by the Revenue at the Supreme Court – KUIL FIREWORKS INDUSTRIES Vs. CCE 1997 (95) ELT 3 (SC). The Tribunal cannot sustain case of Revenue against the assessee on a ground not raised by the Revenue either in the show cause notice or in the order- SACI ALLIED PRODUCTS LTD Vs CCE 2005 (183) ELT-225(SC).

5.6.15 Revenue cannot plead by ignoring the CBEC Circular:-

The Revenue cannot plead the case by placing an interpretation by ignoring the CBEC circulars even if such CBEC circular is placing a different interpretation then given by the Supreme Court – CCE Vs. DHIREN CHEMICAL INDUSTRIES 2002 (143) ELT 19 (SC) because CBEC circulars are binding on the Revenue – CCE Vs. DHIREN CHEMICAL INDUSTRIES 2002 (139) ELT 3 (SC). The Department has no right to plead against a circular or trade notice – BRITISH MACHINERY SUPPLIERS CO. Vs. UOI 1996 (86) ELT 449 (SC); RANADEY MICRONUTRIENTS Vs. CCE 1996 (87) ELT 19 (SC); CCE Vs. JAYANT DALAL PVT. LTD. 1996 (88) ELT 638 (SC); PUREWAL ASSOCIATES LTD. Vs. CCE 1996 (87) ELT 321 (SC); KIRLOSKAR OIL ENGINES LTD. Vs. UOI 1995 (77) ELT 479 (SC); POULOSE AND MATHEN Vs. CCE 1997 (90) ELT 264 (SC); CCE Vs. USHA MARTIN INDUSTRIES 1997 (94) ELT 460 (SC). The show cause notice or consequential demand is ab initio bad if they are contrary to the existing Circulars of the Board – 1999 (112) 765 (SC).

5.6.16 An assessee may challenge the Circular:-

However, where the Supreme Court or the High Court has declared the law on the question at issue, it will not be open to a court to direct that a circular should be given effect to and not the view expressed in the decision – HINDUSTAN AERONAUTICS LTD. Vs. CIT 2000 (119) ELT 513 (SC). CBEC has no right to issue a circular contrary to a decision pronounced by the Tribunal or the Court –RAY MONGLUES & CHEMICALS Vs. UOI 2000 (117) ELT – 29 (Guj.) Trade Notices issued by Excise authorities are not decisive before the Supreme Court or CEGAT – UOI Vs. BAJAJ TEMPO LTD. 1997 (94) ELT 285 (SC). Moreover, against an assessee, such circular cannot be given with retrospective effect – UNIQUE PLASTIC INDUSTRIES Vs. CCE 2002 (145) ELT 604 (T). Consistency and discipline are of far greater importance than winning or losing court proceedings – PAPER PRODUCTS LTD. Vs. CCE 1999 (112) ELT 765 (SC); COMMISSIONER OF C. EX., BOLPUR Vs. RATAN MELTING & WIRE INDUSTRIES 2005 (181) E.L.T. 364 (S.C.); KOHINOOR ELASTICS PVT. LTD. Vs. COMMISSIONER OF CENTRAL EXCISE, INDORE 2005 (188) E.L.T. 3 (S.C.); CONTROL TOUCH ELECTRONICS P. LTD. Vs. COMMISSIONER OF C. EX., PUNE 2005 (190) E.L.T. 155 (S.C.).

5.6.17 A new plea:-

A new plea about a question of fact which was not raised at any earlier stage could not be raised before the Supreme Court – BHARTI TELECOM LTD Vs. CC


2001 (134) ELT 327 (SC). If grounds not raised before the CESTAT could not be raised for first time before the Supreme Court –D.C.L. POLYSTER LTD Vs. CCE 2005 (181) ELT – 190 (SC), specifically when such additional ground is not a pure question of law –CONTROL TOUCH ELECTRONICS P.LTD Vs. CCE 2005 (190) ELT-155 (SC). However, a point of law can be raised before the Supreme Court even if not raised before any earlier stage – CCE Vs. PIOMA INDUSTRIES & IMPERIAL SODA FACTORY 1997 (91) ELT 527 (SC); NATIONAL THERMAL POWER CO. LTD. Vs. CIT 1998 (99) ELT 200 (SC), because there is no estoppel against the law – ELSON MACHINES PVT LTD 1988 (38) ELT 571 (SC). For example, question of classification, being a question of law, can be considered at any stage so long as fact on records are sufficient or the same are based on records available with the Departments – SHREE SYNTHETICS LTD Vs. CC 1999 (105) ELT 416 (T); BINANI ZINC LTD Vs. CC 1999 (112) ELT 578 (T); SAMCOR GLASS LTD Vs. CCE 2001 (45) RLT 527 (T); CC Vs. PERFECT VALVES & MACHINE TOOLS CORP. 2001 (47) RLT 97 (T); INDIAN STEEL WIRES PRODUCTS Vs. CCE 2001 (46) RLT 736 (T). Similarly the effect of any exemption notification – GUJRAT STATE FERTILIZERS CO. LTD Vs. CCE 1996 (83) ELT 159 (T); FRANCO INDIAN BIOLOGICALS P. LTD Vs. CC 1993 (65) ELT 110 (T); GODREJ FOODS LTD Vs. CCE 2000 (115) ELT 403 (T); SONIC BAND INTERNATIONAL Vs. CCE 1999 (109) ELT 524 (T) or question of duty leviability being a legal plea can be raised at any stage.

In the case of I.T.C. Ltd. Vs. CCE 2002 (146) ELT 508 (SC), though the question of excisability was not taken in reply to the show cause notice yet no objection was raised before the Tribunal as to maintainability of the contention of excisability on the ground that it was not raised before the original authority, in interest of justice, the case was remanded to the Commissioner (Appeals) by holding that the appeal before the Supreme Court cannot be rejected on that ground.

Stand inconsistent with that taken before lower authority and reiterated on affidavit before the Apex Court cannot be allowed to be taken –SHENYANG MATSUSHITA S.BATTERY CO LTD Vs. EXIDE INDUSTRIES LTD 2005 (181) ELT –320 (SC)

5.6.18 Question of fact:-

Question of fact shall be decided by the fact - finding authorities below the Tribunal or by the Tribunal itself. Their decision on technical matters as to what were the facts, are not called for any interference – CC Vs. RELIANCE INDUSTRIES LTD. 2000 (115) ELT – 15 (SC) unless there is something patently perverse – PRAGATI COMPUTERS PVT. LTD Vs. C.C., 2000 (115) ELT – 23 (SC). The Appellate Tribunal shall independently decide the question of issue rater than to rely on an adjudication order as well as judgment – CCE Vs. K.K. RUBBER CO. PVT. LTD. 2000 (120) ELT – 28 (SC)

In case where there is fresh evidence before the Tribunal, the proper course before the Tribunal while admitting such evidences, is to remit the matter to the


adjudicating authority, if the Tribunal feels that a fresh opportunity is required to be given – C.C. Vs. HANUMAN TRADING CORP. 1997 (95) ELT 8 (SC).

Materials relied upon by the CESTAT being relevant, authentic, credible and reliable, conclusions drawn there from could not be termed as perverse and irrational. Inference to be drawn from these material fell within domain of factual determination –CCE Vs. BUREAU VERITAS 2005(181) ELT- 3 (SC). The CESTAT being final authority on facts, The Supreme Court shall not interfere –SHARP INDUSTRIES LTD Vs CCE 2005 (188) ELT-146 (SC).

5.6.19 Additional Submissions:-

If specific finding of fact is not challenged in ground of appeal, submission contrary to those findings could not be entertained -CCE Vs. EL.P. EM. Industries 2003 (157) ELT – 498 (SC). Submissions not made before the Upper Appellate Authority cannot consider the lower Appellate Authority, on which such Appellate Authority did not address itself. At maximum, as per the given circumstances of the case, the matter could be remanded before such lower Appellate Authority – DENASNUFF (P) LTD. Vs. CCE 2003 (157) ELT – 500 (SC). When after appreciating the facts, the Tribunal has pronounced a decision, the same could not be challenged – CC, AIR CARGO Vs. J.G. EXPORTS 2003 (154) ELT – 353 (SC).

5.6.20 Right of an Appellate Authority:-

It is well settled law that any Appellate authority having powers to pass such orders as it may deem fit confirming, modifying or annulling with the decision appealed against – UOI Vs. UMESH DHAIMODE 1998 (98) ELT 584 (SC), unless the law creates a specific direction.

The Appellate Authority has all powers which original authority may have in deciding the question before it subject to statutory restrictions or limitations, if any – NATIONAL THERMAL POWER CO. LTD. Vs. CIT 1998 (99) ELT – 2002 (SC); JUTE CORPORATION OF INDIA LTD. Vs. CIT 1991 (ST) ELT – 179 (SC).

It is not the function of the Appellate Authority to enter into the arena and make suppositions that are tantamount to the evidence that a party before it has failed to lead. It is not an investigation to the Appellate Authority to give its opinion thereon, brushing aside the evidence before it. The technical knowledge of the Appellate Authority makes for better appreciation of the record but not its substitution – HINDUSTAN FERODO LTD. Vs. CCE 1997 (89) ELT -16 (SC).

The Appellate Tribunal while reversing a reasoned order of the lower Appellate Authority must indicate as to how the conclusion of the lower authority were erroneous. The Appellate Tribunal does not have unbridled powers to differ with the lower authority. When a different view is taken, reason to support such view must be indicated clearly expressing as to why lower authority’s view is wrong – COATS VIYELLA INDIA LTD Vs. CCE 2004 (173) ELT – 229(SC).


5.6.21 Merger of Appeals:-

Where there are several appeals on similar issues and same fact, all the appeals shall be heard together, the material commonly placed would have been available to the Tribunal – KIRLOSKAR CUMMINS LTD Vs. CC 1997 (93) ELT – 13 (SC).

Where, an appeal has been dismissed by the Commissioner (Appeals) on the ground of limitation, the order against which such appeal was filed, passed by the adjudicating authority does not merge with the appellate order. Tribunal cannot consider the appeal on merits filed against the said order – MAITHAN EERAMIC LTD. Vs. CCE 2002 (145) ELT – 349 (T. LB).

Even if the appeal filed by the assessee challenges a portion of the impugned order, the doctrine of merger will apply. And in case when the Appellate Authority has decided the appeal of the assessee, and the appeal filed by the Revenue is itself much after the decision of the Appellate Authority against the same order, the Revenue Appeal is not maintainable – CCE Vs. L.M.L LTD. (SCOOTER DiVISION) 2002 (143) LET- 431 (T-LB).

5.6.22 Equal treatment with all Assessees:-

Where the Revenue has not chosen to challenge the earlier order of the Tribunal, relied upon by the Tribunal the Appeal filed by the Revenue shall be dismissed on this ground alone -CCE Vs. SUNTRACK ELECTRONICS (P) LTD 2003 (156) ELT – 163 (SC). The principle established is that if the Revenue has not challenged the correctness of the law laid down by the High Court and has accepted it in the case of one assessee, then it is not open to the Revenue to challenge its correctness in the case of other assesses, without just cause – BERGER PAINTS INDIA LTD. Vs. CIT 2004 (165) ELT – 488 (SC); CIT Vs. NARENDRA DOSHI (2002) (254) ITR 606 (SC); CIT Vs. SHIVSAGAR ESTATE (2002) (257) ITR 59 (SC).

5.6.23 Judicial discipline:-

The Supreme Court in UOI Vs. KAMLAKSHI FINANCE CORPORATION LTD. 1991 (55) ELT – 433 (SC) held that the order of the Appellate Collector is binding on the Assistant Collectors working within his jurisdiction and the order of the Tribunal is binding upon the Assistant Collectors and the Appellate Collectors who function under the jurisdiction of the Tribunal. The principles of judicial discipline require that the subordinate authorities should follow the orders of the higher appellate authorities unreservedly. The mere fact that the order of the appellate authority is not “acceptable” to the department - in itself an objectionable phrase - and is the subject-matter of an appeal can furnish no ground for not following it unless its operation has been suspended by a Competent Court. If this healthy rule is not followed, the result will only be undue harassment to the assessees, and chaos in administration of tax laws.


The judicial discipline is required to curb a tendency in revenue matter in considerable harassment to the assessee-public without any benefit to the Revenue. While the behaviour of the Revenue has been expressed in D.C.M. SHRIRAM CONSOLIDATED LTD. Vs UOI 1992 (59) ELT – 260 (RAJ.) as follows:-

“This attitude of the Superintendent, Central Excise, Kota, is an indicator of the fact that mechanically the notices are issued even in cases where there are previous adjudications. A tendency is growing in the Government departments, may be of State Government or of the Union of India, that show cause notices are either mechanically issued or that they are issued for some prospective realisation in expectation of some future judgments of the courts which, in my humble opinion, can never be justified. Besides this such notices unnecessary drag the parties to litigation adding to the burden of the courts and certainly at the cost of tax payers and the shareholders of the companies. Time, money and energy spent in such cases can better be utilized for the developmental works of the Government or of the labourer for increasing the efficiency of the department or the industry.”

5.6.24 Rectification of Mistake:-

The Tribunal has power to rectify any mistake apparent from the record within six months from the date of its order [Section 35C (2)].

(i) Apparent error of fact or law only can be rectified by an order. If mistake of law has to be established by construing words of a section to find its proper meaning, then such an error cannot normally be a rectifiable error. If two views are possible, then error will not be an error apparent from record-POOTHUNDU PLANTATIONS P LTD Vs. AGRICULTURAL I.T.O. CHITTOOR 2004(178) ELT-16 (SC).

(ii) However, where a part of the issues raised before the Tribunal has not been taken up while deciding the case, order is required to be recalled - CCE Vs. AUTOCRATIC INDUS. LTD 2004 (177) ELT-1110 (T), but the grounds which were neither pleaded nor referred to cannot be part of order and rectification on such grounds is not maintainable – CHAMUNDI DIE CAST (P) LTD Vs. CCE 2004 (178) ELT –815 (T) or when the order was decided in open court by considering both sides argument –KRISHNA ULTRAMARINE AND CHEM PVT LTD Vs. CCE 2004 (167) ELT-58 (T) , RASHTRIYA ISPAT NIGAM LTD. Vs. CCE 2004 (163) ELT-113 (T), OM PRAKASH BHATIA Vs. CCE 2001 (131) ELT-305 (T-LB). However, once issue of appeal has not been decided while pronouncing the final order, the error shall be called as apparent on record –RAGICUT TOOLS PVT LTD Vs .CCE 2001 (132) ELT 508 (T).

(iii) If the Supreme Court has constructed the meaning of a section, then any decision to the contrary given by any other authority must be held to be erroneous and such error must be treated as an error apparent on records – POOTHUNDU PLANTATIONS P LTD Vs. AGRICULTURAL I.T.O. CHITTOOR 2004 (178) ELT-16 (SC).


(iv) Matter can be taken up suo motu by Tribunal under Rule 41 of CESTAT (Procedure) Rules, 1982 CCE Vs. AUTOCRATIC INDUS. LTD 2004 (177) ELT-1110 (T).

(v) Power of review is not limited to rectification but wider than power conferred under sec.35C (2) of the Central Excise Act, 1944. Though grounds for rectification i.e. an error on the face of records may be common to a power of review, the nature of power to be exercised in two cases is distinct- CCE Vs. STEELCU GUJRAT LTD 2004 (163) ELT –403 (SC). The CESTAT has no power to review its order- BARON INTERNATIONAL LTD Vs. UOI 2004 (163) ELT –150 (BOM).

(vi) When appeal has been filed before the Supreme Court, R.O.M. application is not maintainable – MYTRI ENTERPRISES Vs. CCE 2005(179) ELT –592 (T).

(vii) Where the decision delivered in appellants own cases in their favour was not considered by the Tribunal while passing the final order, the error is patent and rectifiable – DC POLYESTER PVT LTD Vs. CCE 2005(188) ELT – 423(T) but non consideration of decisions in other cases does not amount to an error apparent at the face of record – CCE Vs. INDUSTRIAL OXYGEN Co. 2005 (192) ELT –436 (T), but the Tribunal could not overlooked the settled legal position and the ratio of decision of High Court as well as the Apex Court 2005 (187) ELT –433(GUJ)

(viii) Cross –objection filed by the appellant actually bearing their submission against ground taken in appeal of Revenue required to be considered by Tribunal. Rectification of Mistake was allowed- BEST & CROMPTION ENGG. LTD Vs. CCE 2000 (121) ELT –272 (T-LB).

(ix) Grounds raised in rectification of mistake application being related to factual and legal aspect requiring reappraisal of evidence, not with-in the scope of section 35C(2) of the Central Excise Act, 1944 QUALITY EXPORTS & CHEMICALS Vs. CEGAT 2000 (122) ELT –361 (All). However, the ratio of the decision followed in the order has already been recalled and matter remanded to the original authority, ROM has been allowed –GOBALD TEXTILES (P) LTD Vs. CCE 2000(116) ELT 533(T).

For further analysis, see chapter 5.8 titled “Rectification of Mistake”.

5.6.25 Authorized Representative:-

See Rule 12 and Rule 13 of the Central Excise (Appeals) Rules, 2001under Part II of this book.

The assessee has the right to be represented by an authorised representative (Advocate, Consultant, Chartered Accountant etc.) in adjudication, appeal and revision proceedings before statutory authorities (Section 35Q).


5.6.26 Writ Jurisdiction:-

Where an order is not one against which an appeal would lie to the Appellate Authority, writ petition shall not be dismissed on the ground of an alternative efficacious remedy- VEEKAY PAPERS Vs. CCE 2003 (158) ELT – 273 (SC).

5.6.27 Time of filing an appeal:-

In case where the existing available time limit has been reduced by the legislature, the reduced time limit does not have retrospective effect, unless specifically provided. If particular right of action had become barred under the earlier provision, that right cannot be revived by later statute even if it provides larger period of limitation than in the earlier one. If later period is shorter than the earlier period, when the later one comes into operation, will not be taken to be extinguished – ELECTROFRONTS Vs. UOI 2003 (162) ELT – 1182 (BOM.)

Even if the appeal filed by the assessee challenges a portion of the impugned order, the doctrine of merger will apply. And in case when the Appellate Authority has decided the appeal of the assessee, and the appeal filed by the Revenue is itself much after the decision of the Appellate Authority against the same order, the Revenue Appeal is not maintainable – CCE Vs. L.M.L LTD. (SCOOTER DEVISION) 2002 (143) LET- 431 (T-LB).

5.6.28 Procedure of filing of the Appeal & its disposal : -

As per Rule 3 of the Central Excise (Appeals) Rules, 2001, an appeal to the Commissioner (Appeals) shall be filled in Form E. A. – 1 (see Central Excise Series Form No.8) and shall be singed by the persons specified in the sub rule (2) of Rule 3 of the Appeal Rules. An application filed by the Department to the Commissioner (Appeals) against the adjudication order issued by the adjudicating authority [below the rank of Commissioner of Central Excise] under section 35E shall be made in Form E.A. –2 (see Central Excise Series Form No.9). Any appeal or application to the Commissioner (Appeals) shall be made in duplicate and shall be accompanied with the copy of the order appealed against.

Section 35A of the Central Excise Act (as amended by the Finance Act, 2001) provides that the Commissioner (Appeals) shall decide the appeal within a period of 6 months of its being filed and shall have no power to remand the matter back to the adjudicating authority for de novo consideration. See also CCE Vs. ORIPOL INDUSTRIES 2003 (155) ELT- 278 (T. LB) even than the remand of the case is still continued as held by the Tribunal in other cases also - UOI Vs. UMESH DHAIMODE 1998 (98) ELT 584 (SC) followed in CCE Vs. TEXCHEM CORPORATION 2003 (157) ELT – 715(T). Section 35 F of the Central Excise Act, 1944 (as amended by the Finance Act, 2001) now provides that the Commissioner (Appeals) shall decide the stay /waiver or pre-deposit application filed under Excise Section 35F, within 30 days of its filing, wherever it is so possible.


5.6.29 Appeal Vs. Cross Memorandum:–

An appeal to the Appellate Tribunal shall be made in the Form E. A. – 3 (see Central Excise Series Form No. 10) within a period of 3 months from the date of receipt of the Order. The Memorandum of Cross Objection can be filed in Form E.A. – 4 (see Central Excise Series No.11) within 45 days of the receipt of notice of filing the appeal. The Form E.A. – 3 and E.A. –4 shall be filed in quadruplicate and shall be accompanied with (1) proof of prescribed fee and (2) equal number of copies of the order appealed against (at least one of which shall be a certified copy). On sufficient cause being shown, the delay in filing appeal or Cross – Objection can be condoned by the Tribunal. Application by Department under Section 35(E) of the Central Excise Act shall be made in Form E.A- 5 (see Central Excise Series Form No.12). This application shall also be filed in quadruplicate and shall be accompanied by equal number of copies of the impugned order (at least one of which shall be certified copy) and copy of the order of the passed by the Board directing such Commissioner to apply to the Appellate Tribunal. Time limit for review of adjudication order by Board or a Commissioner under section 35 E has been reduced, wherever possible, to 6 months, and in any case within one year.

5.6.30 Disposal of Cross- Memorandum:-

Sec. 35 B (4) of the Central Excise Act, 1944 stipulates that an appeal has been preferred under this section, the party against whom the appeal has been preferred may, notwithstanding that he may not have appealed against such order or any part thereof, file [within forty-five days of the receipt of the notice] a memorandum of Cross-Objection verified in the prescribed manner against any part of the order appealed against and such memorandum shall be disposed off by the Appellate Tribunal as if it were an appeal presented within the time specified in sub-section (3).

5.6.31 Procedure to get refund pre-deposit :-

Once the appeal being decided in assessee’s favour, the assessee may file a simple letter for return of the deposit along with a copy of the –order in-appeal and an attested copy of the deposit Challan. The Assistant Commissioner or Deputy Commissioner is under instructions to return the deposit forthwith with bank guarantee [M.F. D.R. Circular No. 275/37/2K-CX. 8A, dated 2-1-2002 published at 2002 (139)] ELT – T- 38-39 and Board Circular No.802/35/2004- CX dt. 8-12-2004 published in 2004 (174) ELT –T-9.

The Department cannot retain the amount deposited during “pending appeal”, once the appeal is disposed off though by remand and de novo adjudication of the matter ordered. [Kuil Fireworks (P) Ltd. Vs. Collector – 1997 (95) ELT 3 (S.C); VOLTAS LTD. VS. UOI – 1999 (112) ELT 34 (Del.) ; 2002 (144) ELT 56 (Bom.) – NELCO LTD. UOI]. The Ministry also accepts this position vide the first paragraph of its Circular dated 2-1-2002 referred to in the preceding para. In COMMISSIONER Vs. CALCUTTA CHEMICALS CO. Ltd. – 2001 (133) ELT 278


(Mad.), the High Court granted 15% interest from the CEGAT Order for delayed refund of the pre-deposit without any cause. Interest accrued on the pre-deposit is also to be refunded to the assessee vide UOI Vs. NIRLON SYNTHETIC FIBRES & CHEMICALS CO. – 2001 (134) ELT 8 (SC). The Tribunal has held that in computation of interest for delayed refund of pre–deposit, fine and penalty, the provisions of Section 11 BB / Section 27 A would be followed i.e. interest will be paid from the date of expiry of three month from the date of receipt of final order of the Tribunal till date of payment -INDIAN THERMOPLASTICS (P) Ltd. Vs. CC 2004 (164) ELT 156 (T-LB). However, where the Departments action was a forced action, petitioner was not liable to pay tax or duty, but paid the same upon insistence of the Department, the revenue shall be liable to pay interest from the date of the payment made to the Department – GOLD STONE ENGINEERING LTD Vs. UOI –2003 (181) ELT- 11 (AP).

5.6.32 Disputes between Revenue and Public Sector Undertaking:-

In respect of disputes between a Government Department and Public Sector Undertakings, though an appeal is allowed to be filed in order to save limitation, prior clearance from a High Powered Committee of Secretaries is required before the matter can be proceeded with before a Court / Tribunal. For detailed guidelines in this respect, please see 1995 (78) E.L.T. (T37) and Board’s instructions at 1996(88) ELT (T38). The Department cannot enforce recovery of the dues while the reference is pending before the said Committee of Disputes.

5.6.33 Signature of Appeal:-

The ground of appeal and the form of verification as contained in Form No. E.A. – 1 shall be signed-

(a) In the case of an individual, by the individual himself or where the individual is outside from India, by the individual concerned or by some person duly authorized by him in this behalf; and where the individual is a minor or is mentally incapacitated competent to act on his affairs, by his guardian or by any other person competent to act on his behalf;

(b) In the case of a Hindu undivided family, by the karta and, where the karta is outside from India or is mentally incapacitated from attending to his affairs, by any other adult member of such family;

(c) In the case of a company or local authority, by the Principal Officer thereof;

(d) In the case of a Firm, by any partner thereof, not being a minor;

(e) In the case of any other association, by any member of the association or the principal officer thereof; and

(f) In the case of any other person, by that person or some person competent to act on his behalf.


In the case of BAJAJ HINDUSTAN LTD. Vs. CCE 2002 (149) ELT- 529 (T), it was held that defect in fact of the appeals, on account of the non- signature of the appellants on the memo of appeal and the verification was curable and not a fatal for throwing away their appeals on that technical ground without hearing them – APTAB ALI Vs. CC (PREV) 2002 (148) ELT – 692 (T) ; U.P STATE SUGAR CORPORATION LTD. Vs. CCE 2001 (134) ELT – 497 (T). The power of attorney holder of the appellant can also file the appeal- DEENDAYAL DIDWANIA Vs. CCE & C 2003 (155) ELT – 17(SC).

5.6.34 Other Issues:-

Dismissal of appeal / S.L.P. by Supreme Court at admission stage cannot be relied upon as a binding precedent [Sun Export Corporation Vs. Collector - 1997 (93) ELT 641 (SC)].

The Supreme Court has held in RISHI NANDAN PANDIT Vs STATE OF BIHAR-1999 (114) ELT 779 (SC) that Tribunal is not empowered to dismiss an appeal for default of appearance but has to decide it on merits after perusal of records.

Finding in an earlier remand order is not binding on higher court when it hears an appeal against subsequent order but coordinate or subordinate court / authority is bound by it –COLLECTOR Vs. HINDUSTAN LEVER LTD. 2000 (120) ELT 3 (SC).


5.7. DEMAND AND REFUNDS

The assessee may apply for refund wherever he paid the Service Tax more than the tax assessed or payable. Such refund can be made in accordance with the provisions of Section 11B and 11D of the Central Excise Act, 1944 as made applicable to Service Tax by virtue of Section 83 of the Finance Act, 1994.

REFUND OF DUTY – Sec. 11B of the Central Excise Act, 1944 [Corresponding to Sec. 27 of the Customs Act, 1962]

1. In case where there is an excess payment of duty or the duty has been recovered without authority of law, there is a provision to refund such excess recovery to the person who has suffered such burden. And, it is a legal assumption that incidence of the duty has been passed on to the customer. Sec. 11B of the Central Excise Act, 1944 and Sec. 27 of the Customs Act, 1962 deals the provisions and procedure in this regard.

2. It is well settled law that an adjudication order determining classification, valuation etc., if not challenged in appeal despite being appellable, cannot be questioned by filing refund claim on the ground that the adjudication authority had committed an error in passing the earlier order – See COLLECTOR Vs. FLOCK (INDIA) PVT. LTD. – 2000 (120) ELT 285 (SC).

3. For claiming refund of any duty of excise, an application in prescribed form has to be filed before the Assistant Commissioner / Deputy Commissioner in duplicate within one year from the relevant date which in the case of manufacturer – assessee, is generally the date of payment of duty. Date of payment of duty is to be excluded while computing the period of limitation. However the limitation is not applicable where the duty is paid under protest.

4. “Relevant date” for refund of excise duty means :-

(a) in case of export, where a refund of excise duty paid in respect of the goods themselves or duty paid on the excisable materials used in the manufacture of such goods, the date of completion of export;

(b) in case of goods returned for being remade, refined, reconditioning etc, the date of entry into the factory;

(c) in case of return of goods cleared for export out of India, the date of entry into the factory;

(d) in case of payment of duty based on fixed rate system which is reduced subsequently, the date of such reduction;


(e) in case of a person, other than the manufacturer, the date of purchase of the goods by such person;

(f) in case where an exemption is granted by a special order, the date of issue of such order;

(g) in case of provisional assessment, the date of adjustment of duty after the final assessment there-of;

(h) in all other cases, the date of payment of duty.

[See sec. 11B of the Central Excise Act, 1944].

And in case of refund of Customs Duties under section 27 of the Customs Act, 1962, the term “relevant date” means –

(i) from the date of payment of duty or interest;

(ii) in case of refund because of exemption by a specific order under section 25 (2); from the date of issuance of such order;

(iii) from the date of purchase of goods by the person (where refund claim is filed by a person other than importer);

(iv) in case of provisional assessment, from the date of adjustment of duty after the final assessment thereof.

However, in case of order confirming the demand of duty has been set aside by the appellate authority, the assessee is automatically entitled to get back the amount of pre-deposit.

5. The following types of refunds have been kept out of the bar of unjust enrichment: -

(a) Rebate on account of export;

(b) Unspent advance deposits lying in balance in PLA;

(c) Refund of CENVAT Credit;

(d) Duty of excise paid and borne by the manufacturer (such as in cases of post-removal demands;

(e) Duty of excise paid and borne by the buyer;

(f) Refund granted in pursuance of special order by the Government in the Official Gazette; and

(g) Where duty has been paid under protest.


In other cases, the refunds shall be debited to the consumer welfare fund established under Sec. 12 C of the Act, 1944.

6. As per the provisions of Sec. 11D, any duty on any excisable goods recovered from the buyer shall be credited to the Central Government even if the same has been collected in excess. Sec. 12A stipulates that on the relevant documents, the amount of such duty must be mentioned. Sec. 12B presumes that such incidence has been passed on to the buyer of such goods, sec. 12 C & 12 D is about establishment of consumer welfare funds and its utilization. [See also Sec.28 C & 28 D of the Customs Act, 1962].

7. Sec. 28B of the Customs Act, 1962 lays down that any duty collected from buyers must be deposited with the Central Government. Sec. 28 D assumes that every duty has been recovered from the Customers. It means in case of excess payment of duty or payment of duty under protest also, because of such effect, the probability to grant refund is minimal unless and until with evidences, it has been proved that at the time of ascertaining duty, its incidence has not been passed on. Subsequent adjustment has no relevance. – See CCE Vs ADDISON & CO. 1997 (93) ELT- 429 (T); what matter is whether duty was passed on to buyers at the time of sale. However, where the buyer does not accept such levy, and on his protest, accounting adjustment to take back incidence of duty on manufacturer himself has been made, the question of transferring incidence of duty on any other person does not arise – THERMON HEAT TRACERS LTD. Vs CCE 2001 (132) ELT 455 (T); MODERN SYNTEX LTD. Vs CCE 2001 (131) ELT 96 (T).

8. In case of Payment of duty under protest, it was held that if no material is produced by assessee to show that burden of duty paid under protest was not passed on to consumers despite opportunity granted, it alone is sufficient to disentitle him from claiming the refund - BOMBAY TYRE INTERNATIONAL LTD. Vs. COMMISSIONER – 2000 (121) E.L.T. 8 (S.C.).

9. When refund arises out of a settlement between the parties, provisions of the Interest Act, 1978 or Section 11AB of the Central Excise Act, 1944 (Section 27A of the Customs Act, 1962) or the bar of unjust enrichment shall have no role to play - LIVING MEDIA INDIA Ltd. Vs. UOI - 1998 (104) E.L.T. 3 (S.C).

10. In case provisional assessment, in case of MAFATLAL INDUSTRIES LTD Vs. UOI 1997 (89) ELT 247 (SC), it was held that finalization of provisional assessment under Rule 9B(5) and consequential adjustment by way of recovery / refund is not governed by Section 11B. But if a final order passed under Rule 9B(5) is appealed against or questioned in a writ petition or suit, consequential refund claim


will be filed under Section 11B the bar of the unjust enrichment is applicable. Similarly, where a separate refund claim is filed after decision under Rule 9B (5), it would also be governed by Section 11B. Now w.e.f. 1-7-2001, please see Rule 7 of the Rules 2001 [now the Rules, 2002].

In case where the invoice does not show duty element separately, it does not mean that the manufacturer is not passing on the incidence of duty to customer nor does it follow there from that the manufacturer is absorbing the duty himself. See MAFATLAL INDUSTRIES LTD Vs UOI 1997 (89) ELT 247 (SC); Where price is composite price, assumption of unjust enrichment is applicable – PUNJAB ALKALIES AND CHEMICALS LTD Vs CCE 2001 (134) ELT – 695 (T); but where price and duty quantum is fixed irrespective of charge in actual duty amount (on higher side) the assumption of passing the incidence is not applicable – ASSOCIATED CEMENT CO. LTD Vs CCE 2001 (130) ELT 277 (T); PRINTERS (MYSORE) LTD Vs CCE 2001 (132) ELT 641 (T); CCE Vs. NICCO CORP. LTD. 2003 (156) ELT – 144 (T).

The whole amount collected as duty from the buyer has to be paid to the State under Section 11D even if it is more than the duty according to law. The Surplus amount will either be credited to the Consumer Welfare Fund or be paid over to the person who has actually borne its incidence. Now, with effect from April 18, 2006, see Sec.73A of the Finance Act, 1994 as inserted by sec 68(F) of the Finance Act, 2006.

Section 11D is attracted only when goods are sold. It is not applicable to removals on non-sale basis – See MAFATLAL INDUSTRIES LTD Vs UOI 197 (89) ELT 247 (SC). However, the principle of unjust enrichment is equally applicable to imported raw material, which is not sold as such but is captively consumed in further manufacture, as held by the Supreme Court in UNION OF INDIA Vs SOLAR PESTICIDE PVT. LTD. 2000 (116) ELT 401 (SC); CC Vs BORAX INDIA LTD 2001 (134) ELT 11 (SC).

Even if any excise duty is not leviable on a commodity, the recovery of such duty on such goods is not a case of an unconstitutional levy. In such a situation sec. 11D is applicable. An unconstitutional levy is only where a provision of the Act under which tax is levied, is struck down as unconstitutional for transgressing constitutional limitations. Even in a situation of assuming the levy as unconstitutional, it has to be established that incidence of duty has not been passed on to others – See SRF LTD. Vs ACCE 2001 (134) ELT 324 (SC).

An adjudication order determining classification, valuation etc., if not challenged in appeal despite being appellable, cannot be questioned by filing refund claim on the ground that the adjudicating authority had committed an error in passing the


earlier order. - See COLLECTOR Vs. FLOCK (INDIA) PVT. Ltd - 2000(120) E.L.T. 285 (S.C).

Refund, even if other wise due on merits, will be granted to the assessee only if he has not passed on the incidence of duty to the buyer of his goods; otherwise, the refund due would be sanctioned and credited to the Consumer Welfare Fund. Burden to prove that he has not passed on the tax incidence to buyers is on the claimant.

However, the bar is not applicable to refund of pre-deposit made under section 35F. Similarly, the presumption under Sec. 12B is not attracted where the duty is paid by making debit entries in PLA subsequent to the date of clearance of goods.

The Supreme Court in the case of MAFATLAL INDUSTRIES LTD Vs UOI 1997 (89) ELT 247 (SC), held that:

(i) duty paid under an order of the Court whether by way of order granting stay, suspension, injunction or otherwise is to be treated as a payment under protest and a protest under Rule 233B need not be lodged, and

(ii) while lodging a protest under Rule 233B, the assessee need not particularize the ground of protest. Assertion that "duty is not exigible according to law" is sufficient to lodge protest.

The Supreme Court in the case of SINKHAI SYNTHETIC & CHEMICALS PVT LTD Vs CCE 2002 (143) ELT 17 (SC), held that refund of duty paid under protest shall not be governed by section 11 B.

If duty has been paid under protest by a manufacturer, “then his purchaser (distributor) is not entitled to claim refund of on account” payment made under protest by the manufacturer without complying with Section 11B – 2004 (160) ELT 3 (S.C) in CCE Vs. ALLIED PHOTOGRAPHICS India Ltd.The authority has no right to reject the protest letter of the assessee- 2004 (170) ELT 440 (Tri.) – KIRAN PROCESSORS Pvt. Ltd. V. CCE. Further held 2004 (170) ELT A235 (S.C) that refund claim of duty paid under protest is not covered by Section 11A or 11B and hence not hit by the doctrine of unjust enrichment. There is no rule or provision by which protest could be lodged by a purchaser. The legislature has so worded the provision of Section 11B (1) that if duty is paid by a manufacturer under protest, then the limitation of one year will not apply even to a claim for refund by the purchaser – 2003 (154) ELT 350 (SC) in NATIONAL WINDER Vs. CCE.

11. In case where any refund is not granted within three months from the date of receipt of application, the interest shall be available as


per the rates notified by the Government not below 5% and not exceeding 30% per annum – sec. 11BB.

Now the rate is @ 6% w.e.f. 67/2003 dt. 12/9/03 – 2003 (156) ELT – N 108.

Rate of interest on delayed payments has now been notified vide Notf No. 26/2004 ST dt 10-09-2004.

12. And where the Departments action was a forced action, petitioner was not liable to pay tax or duty, but paid the same upon insistence of the Department, the revenue shall be liable to pay interest from the date of payment made to the Department – GOLD STONE ENGINEERING LTD Vs. UOI 2005 (181) ELT –11 (AP).


5.8. RECTIFICATION OF MISTAKE – Sec. 74

Provisions: - Sec.74 of the Finance Act, 1994

(a) After passing the order, the mistake apparent from the record can be rectified within two years by the Assistant Commissioner or Deputy Commissioner, as the case may be, from the date of the original order to amend such order.

(b) Where in case of any matter considered and decided in appeal or revision, the adjudicating authority may amend the order to rectify the mistake apparent on records for any matter [other than the matter which has been considered and decided by the Appellate or Revisionary Authority].

(c) The rectification can also be made in case of bringing the notice by the assessee or the Commissioner of Central Excise / Service Tax, or the Commissioner (Appeals) of Central Excise before him.

(d) The proceeding shall be made under the principle of natural justice, by granting a reasonable opportunity of being heard to the assessee and order must be in writing.

(e) Under such proceedings, in case of reducing the liability or increasing a refund, the excess payment shall be refunded to the assessee. However, in case of enhancing the liability of the assessee or reducing a refund, the figure of short payment shall be recovered from the assessee.

Remarks: -

The key term in the whole provision is “……………….. apparent from the records ………….” which means there is an obvious and patent mistake but not a mere issue of an interpretation of the law – T.S. BALARAM Vs. VOLKART BROS. (1971) 82 ITR 50(SC), C. T.O. Vs. SRI VENKATESWARA OIL MILLS (1973) 32 – STC 660 (SC) , it is mostly subjective and the dividing line in border areas is thin and indiscernible. It is something which is a duty and judiciously instructed mind can find out from the record – T.S RAJAN Vs. C.E.D. (1968) 69 ITR 342(Mad).

The word “apparent” refers something which appears to be so ex- facie and is incapable of argument or debate – N. RAJAMONI AMMA Vs. DY. CIT (1990) 86 CTR. 12 (Ker) which must be recovered from the records of the assessee but not from other sources – EM VISHWANATHAN CHETIAR Vs. AGRLITO (1983) 142 ITR 244 (Karn). Mistake need not be in the order itself, even if it is in working sheets or annexures, it can be rectified - (1984) 149 ITR 525 (Mad.) in SUNDARAM TEXTILES LTD.

A question on which there is difference of opinion between two judges of High Court cannot be rectified by invoking provisions of section 154 – CIT Vs. South India bank Ltd. [2001] 249 ITR 304 (SC). A mistake apparent from record must


be an obvious and patent mistake, it must not involve a debatable point of law – T.S. Balram, ITO Vs. Volkart Bros. [1971] 82 ITR 50 (SC). For instance, where controversy can be resolved only by way of a complicated process of investigation, recourse cannot be taken to section 154 of the Income tax Act, 1961 - CIT Vs. DELHI CEMENT STOCKISTS [1971] 81 ITR 515 (DELHI).

The word- “Records”: -

The Finance Act, 1994, has not defined the term “record”. However, reliance could be taken from sec. 154 of the Income – Tax Act, 1961 because of employment of the words “mistake apparent on record”. The record referred to in section 154 does mean only the order is based and the Income –Tax Officer is entitled for the purpose of exercising his jurisdiction under section 154 to look into whole evidence and the law applicable to ascertain where there was an error. -- (1959) 36 ITR 350 (SC) in MAHARANA MILLS (PVT) LTD.

‘Record’ would mean the record of the case comprising the entire proceedings incumbents and material produced by the parties and taken on record by the authorities, which were available at the time of passing the order, which is the subject matter of proceedings for rectification. The authorities cannot go beyond the record and look into fresh evidence and materials, which were not on the record at the time the order sought to be rectified, were passed - (1995) 214 ITR 50 (Bom.) in GAMMON INDIA LTD.

Record does not mean only the order of assessment but it comprises of all proceedings on which assessment order is based –MAHARANA MILLS (P.) LTD. vs. ITO [1959] 36 ITR 350 (SC). Tribunal’s finding is a part of records of appeal so as to empower the Deputy Commissioner to rectify his earlier order – MAHENDRA MILLS LTD. Vs. P.B. DESAI AAC [1975] 99 ITR 135 (SC). Records of assessment of other assessment years can also be looked into –INDRA SINGH & SONS (P.) LTD. UNION OF INDIA [1967] 64 ITR 501 (CAL.) By Successor Commissioner: -

Successor Commissioner cannot refuse to entertain rectification application in respect of the order passed by his predecessor on the ground that, he being a succeeding Commissioner, could not sit over the judgment of his predecessor to review his order under the guise of making rectification – Trustees of Indore Cancer Foundation Charitable Trust v. Union of India [2001] 248 ITR 730 (M.P).

The Term “Order”:-

Since the “order” as mentioned has not been specified as original first order, it includes amended or rectified order and, therefore, where original assessment was subsequently rectified, a second application for rectification made within


two years from date of first certificatory order was valid – HIND WIRE INDUSTRIES LTD. Vs. CIT[1995] 212 ITR 639 (SC). However, where mistake in original assessment is left untouched in subsequent reassessment, period of limitation should be counted from the date of original assessment and not from the date of reassessment – METTUR CHEMICAL & INDUSTRIAL CORPN. LTD. Vs. CIT [1977] 110 ITR 822 (Mad.), Limitation period is applicable only to making of order and not to issue of demand notice – S.T.VELU Vs. CIT [1985] 33 ITR 463 (Mad.). Where the first rectification application has been dismissed by the Commissioner (Appeals), the successor Commissioner (Appeals) cannot admit a second application and allow the same in respect of the same alleged mistake – CIT v. J. K. BANKERS [2000] 245 ITR 844 (All.)

Few Examples:

In terms of section 74 of the Finance Act, 1994 there has to be mistake apparent from the record. In other words, a look at the record must show that there has been an error and that error may be rectified. For example reference to documents outside the record and the law is impermissible when applying the provisions of section 74 of the Finance Act, 1994 – see CIT v. KESHRI MEHRI METAL (P) LTD. [1999] 237 ITR 165 (SC).

If order is plainly and obviously inconsistent with the specific and clear provision amended retrospectively indisputably, there is a mistake apparent from record – CIT v. E. SEFTON & Co. (P) LTD. [1989] 179 ITR 435 (Cal.). A subsequent decision of Supreme Court can validly from basis for rectifying an order of assessment under section 74 provided decision is given by the Apex Court within two years from the date of order – B.V.K. SESHAVTARAM Vs. CIT [1994] 210 ITR 633 (AP), KIL KOTAGIRI TEA & COFFEE ESTATES Co. LTD. Vs. ITAT [1988] 174 ITR 579 (Ker.) CBDT has also issued circular No. 68 [F. No. 245 /17/71 – A & PAC]. dated November 17, 1971 in support of a foresaid view.

If there is a divergence of opinion amongst various High Courts on a particulars controversy, rectification cannot be resorted to by merely applying or following decision of jurisdictional High Court [if debate was settled subsequently by the Supreme Court, rectification is permissible]- CIT Vs. ORIENT PAPER INDUSTRIES LTD. [1994] 208 ITR 158 (Cal.), V.R. SONI Vs. CIT [1979] 117 ITR 838 (Cal.), VEENA THEATRES Vs. UNION OF INDIA [1977] 109 ITR 748 (Pat.), RAJA HARI CHAND RAJ SINGH Vs. CIT [1978] 114ITR 727 (All.)

Contrary decision was pronounced by Allahabad High Court in Omega Sports & Radio Works v. CIT [1982] 134 ITR 28; CIT v. Premier Polymer (P.) Ltd. [1992] 107 CTR (Cal.) 310 CIT v. Ramlal Babulal [1998] 148 CTR Punj. & Har.) 643.

Rectification is not obligatory on the part of the Assessing Officer if clear data is not available - Anchor Pressings (P) Ltd v. CIT [1986] 161 ITR 159 (SC).

An authority cannot proceed to rectify mistake in an order of any higher authority. An Assessing Officer cannot rectify a mistake in order of the Deputy Commissioner – Babulal & Bros. V. CIT [1989] 177 ITR 451 (M.P)


Why Show Cause Notice is required?

The object of issuing a notice to the assessee before passing a rectification order is that order for rectification should not be passed to the detriment of the assessee without affording him a reasonable opportunity of hearing, but the rule is not so rigid that if, as a matter of fact, the assessee has knowledge of the proceedings and the matter has been discussed with him, even then an adverse order would be invalid because no notice was given except where the assessee himself has surrendered such a civil right. The action under section 74 may be taken in favour of the taxpayer without any notice to him but if the action has the effect of enhancing an assessment or reducing the refund, the Assessing Officer must sent a notice to the assessee and give him a reasonable opportunity of being heard – M. Chockalingam & M. Meyyappan v. CIT [1963] 48 ITR 34 (SC).

The condition of issuing a show cause notice before raising a demand is a mandatory requirement – CCE Vs TIN PLATE CO. OF INDIA LTD 1996 (87) ELT 589 (SC), mere communications, orders, suggestion or advices from the department not to be deemed to be a show cause notice – METAL FORGINGS Vs UOI 2002 (146) ELT- 241 (SC). But since its operation is one which deals with the individual rights of a person concerned and is for his benefit, the said person can always waive such right – CC Vs VIRGO STEELS 2002 (141) ELT 598 (SC). Thus, right of show cause notice under section 74 of the Finance Act, 1994 Customs Act, 1962 being personal to the person concerned, the same can be waived by that person even if it is a mandatory requirement.

And for further analysis, see paragraph No.5.6.24 under Chapter 5 of Part II of this Book.


5.9. POWER OF SEARCH – Sec. 82

5.9.1 The Provisions: -

If the Commissioner of Central Excise has reason to believe that any documents or books or things which in his opinion will be useful for or relevant to any proceeding under this Chapter are secreted in any place, he may authorize any officer [Assistant Commissioner of Central Excise or Deputy Commissioner of Central Excise, as the case may be] to search for and seize or may himself search for and seize such documents or books or things.

The provisions of the Code of Criminal Procedure, 1973 (2 of 1974), relating to searches, shall, so far as may be, apply to searches under this section as they apply to searches under that Code – see Sec. 82 of the Finance Act, 1994.

5.9.2 Departmental Clarification: - There shall be no routine visit or check to the premises of the service tax assessees. However, the Assistant Commissioner in jurisdiction in case of necessities for verification or investigation will authorize officers subordinate in rank to him to visit such premise. Again the power of search will be exercised by the Assistant Commissioner of Central Excise with prior approval of the Commissioner- See Trade Notice No. 112/97 ST dt 2-12-1997 issued by the CCE, Calcutta –II. Any visit to the premises of the assessee may be made only after giving the concerned assessee a notice in writing explaining therein the purpose of the visits. The officer should also clearly indicate the documents, which may be required by them during their visits. No visits should be made without giving a clear notice of 15 days to the assessee and all such visits shall be only with the prior approval of the Commissioner. However, in case of any specific information or intelligence regarding evasion of service tax or contravention of law by any assessee, the due process of law may be followed and action may be taken accordingly depending upon the exigency of the situation – See Trade Notice No. 103/99 dt. 1/10/1999 issued by the CCE, Madurai – 1999 (114) ELT 13.

5.9.3 The term reasonable belief: -

What is reasonable belief would depend upon the facts and circumstance of each case. It is not possible to say that a reasonable belief can be founded only on some pre-existing information, which the seizing authority had at the time of seizure. The question is whether the seizure was affected merely on suspicion or in a state of reasonable belief. If the requirement of law were to be made, there should be some pre-existing information available to the seizing officer founding a reasonable belief in his mind; the usefulness and very purpose of the very enactment will be defeated. Undoubtedly there must be a check on officers harassing people on suspicion warranted or unwarranted. An officer is however, not prevented from entertaining a reasonable belief regarding the nature of the goods even in the very course of his interception of the offending persons and interrogation of that persons, from the answer given by him. It is neither


possible nor desirable to set out in any precise forms or formula which alone can afford any basis for the requisite of reasonable belief to be engendered by the officer as the question whether the goods are contravened or not – R.D. GOGANI Vs CC 2000 (126) ELT 321 (Mad.).

5.9.4 Testing the term reasonable belief: -

Whether or not the officer concerned entertains reasonable belief cannot be looked under a microscope. It is only from the circumstances attending the incident that can form the basis of such belief. It is not open for the courts to scrutinize the action of the concerned officer with minute details and considerations. It is only the experienced eye of the concerned officer, which can form the opinion. The opinion framed by the officer cannot be wholly objective it has some undoubted element of subjective thinking. It would be wrong for the court to consider the matter as if the court is sitting in the appeal over the conclusions reached by the concerned Officer. If the circumstances and material which was before the appropriate officer prima facie gives sufficient ground to entertain the belief which entertained, it is immaterial as to whether the court on its own might or might be not have entertained a similar belief. The belief, which is referred to in Sec. 123 of the Custom Act, 1962, is a reasonable belief. Therefore, what is to be seen is whether a reasonable man placed in the situation in which the appropriate officer was, would entertain such belief or not, in forming the said belief, the condition of mind has to be considered in the given circumstances [SURESH PUKHRAJ Vs D. R. KOHLI AIR 1962 SC 1559; INDRU RAMCHAND BHARVANI Vs UOI 1992 (59) ELT 201 (SC); SURESH KUMAR AGARWAL Vs CC 1998 (103) ELT 18 (AP)].

5.9.5 Sufficiency of materials & effects: -

The question whether the seizure under sec. 110 of the Customs Act 1962 was under a reasonable belief or not is a justifiable one, but once it is found that there was material, relevant and germane, the sufficiency of the material is not open to judicial review – TIRUPATI TRADING CORPN. Vs CC 1998 (104) ELT 618 (Cal). The Circumstances under which the officer concerned entertained reasonable belief have to be judged from his experienced eye who is well equipped to interpret the suspicious circumstance and to form a reasonable belief – NDRU RAM CHAND BHARVANI Vs UOI 1992 (59) ELT 201 (SC); STATE OF GUJRAT Vs MOHAN LAL 1987 (29) ELT 483 (SC); In UOI Vs LEXUS EXPORTS PVT. LTD. 1994 (71) ELT 348 (SC), it was held that the proceedings of seizure and confiscation are proceeding in ram, the question as to whether in a particular case, the grounds are sufficient to form a reasonable belief depends upon the facts of each case – BIKANER – ASSAM ROAD LINES INDIA LTD. Vs UOI 2000 (119) ELT 282 (Pat.)

Merely because of non mention of an information report in the panchnama, it does not mean that there was no information about concealment, but there should have been a reasonable belief consequent to which the search was conducted – RAMESH KHATNANI Vs CC 1999 (110) ELT 631 (T).


But in case, where there were good reasons for initiating search and seizure proceedings, the fact that nothing came out of the search and seizure proceedings will not vitiate the issue of a search warrant. Mere discovery of incriminating documents on search will not land validity or justification to search and seizure proceedings which was at its inception unlawful – BISHNU KRISHNA SHRESTHA Vs UOI 1987 (27) ELT 369 (Cal.)

5.9.6 Compliance of Cr. P.C. provisions: -

If an empowered officers or an authorized officer while effecting search during normal investigation into offences purely under the provisions of Cr. P. C. fails to strictly comply with the provisions of sec. 100 and 165 of Cr. P. C. including the requirement to record reasons, such failure would only amount to an irregularity and if there is no strict compliance with the provisions of Cr. P. C., then such search would not per se be illegal and would not vitiate the trial, while appreciating the evidence in the facts and circumstances of each case – STATE OF PUNJAB Vs BALBIR SINGH 1994 (70) ELT 481 (SC).

No strict compliance with the provisions of sec. 165 of Cr. P. C. is called for, so far as the requirement of a search with reference to sec. 105 of the Customs Act read with Sec. 12 and 18 of the Central Excise Act are concerned and which are made applicable to searches under the Central Excise Act. Therefore, the challenge to the validity of the search on the grounds of flouting the procedural safeguards, which are required to be observed under section 165 of Cr. P. C. is rejected – VICTORY GLASS AND INDUSTRIES LTD Vs CCE 1990 (47) ELT 540 (KARN) [see also PUKHRAJ Vs KOHLI 1983 (13) ELT 1360 (SC); STATE OF MAHARASHTRA Vs NATWARLAL DAMODARDAS SONI AIR 1980 SC 593.

5.9.7 When search is illegal: -

In case where search is illegal because of not following the proper procedure, the allegation of creating an obstruction to public servant in discharge of the duty could have no relevance – STATE OF BIHAR Vs ADAM HUSSAIN 2000 (126) ELT 441 (Pat).

If there is a contravention of Sec.103 and 165 of Criminal Procedure Code, search would be invalid, but the illegal search would not vitiate the seizure of article, if the seizure is otherwise permissible – C & CED Vs VEERABHADRESWARA WEAVING FACTORY & OTHERS 1983 (14) ELT 1758 (KARN.) or the trail or adjudication proceedings –P.K. GHOSH Vs. KAILASH KUMAR MAZODIA – 2000 (117) ELT – 14 (CAL).

5.9.8 Seizure of documents: -

The power to search includes and confers the power to seize the documents also where there is a reasonable belief – PRAKASH COTTON MILLS PVT LTD Vs B.N RANGWANI 2001 (138) ELT 40 (BOM.). And if the documents are not relying upon documents, the Department is duty bound to return the same. They have


no authority either under the law to sit tight over the records and refuse to return the same. The Department has no authority under the law to keep the records with it – METHODEX SYSTEMS LTD Vs UOI 2001 (127) ELT 44 (MP). If no show cause notice has been issued within the stipulated time, the seized goods must be returned to the assessee – HARBANS LAL Vs CCE 1993 (67) ELT 20 (SC) because of confiscation without jurisdiction, but it does not mean that any confiscation, fine or penalty shall not be impossible.

5.9.9 Right to take copy of the records: -

No prosecutor can be allowed or permitted to say that the defence should be raised in accordance with the directions of the Department. Once a person feels that his defence would be founded on the number of the documents, facts, circumstances and the legal provisions, the department can not press its foot to crush the legal defences or the documentary defences available to a noticee – It is fully the choice of the noticee to raise all defences which are available to him under the law and the right of the Department / authority would only be to consider the defences and reject the same if the same are not in accordance with the law or are based on misconstruction of the factual aspect or misconception of law. The Department has no authority under the law to keep the records with it – METHOD-EX SYSTEMS LTD. Vs UOI 2001 (127) ELT 44 (M.P.).

5.9.10Burden of prove: -

It is well settled law that in the proceedings under the Customs Act, or the Central Excise Act, the initial burden of proving that the goods in question are contravened goods (i.e. subject to detention / seizure) is on the Department, which can be satisfactorily discharged by circumstantial evidence. The Department is not required to prove its case with mathematical precision to a demonstrable degree. Even so, the Department is not relieved of its obligation to establish the guilt of the offender with such a degree of probability that a prudent man may, on its basis, believe in the existence of the fact in issue. In other words, since it is exceedingly difficult if not absolutely impossible for the Department to prove facts, which are especially within the knowledge of the offender, it is not obliged to prove them as part of its primary burden. However, this does not mean that the special or peculiar knowledge of the person proceeded against will relieve the Department altogether of the burden of producing some evidence in respect of that fact in issue. It will only alleviate that burden to discharge which very slight evidence may suffice. The Department would be deemed to have discharged its burden if it adduces only so much evidence circumstantial or direct, as is sufficient to raise a presumption in its favour with regard to the existence of the facts sought to be proved – ISSARDAS DAULAT RAM Vs UOI AIR 1965 SC 1867; M/s KANUNGO AND CO. Vs CC AIR 1972 SC 2136; CC Vs D. BHOORMULL, AIR 1974 SC 859.

5.9.11 Effect of suspicion: -


It is well settled law that no amount of suspicion can form the foundation for a confiscation proceedings under the Customs Act – Suspicion however, strong, cannot take the place of proof – RAJENDRA PRABHU Vs UOI 1997 (107) ELT 293 (KAR). Suspicion however grave it might be, can scarcely take the place of proof – KHARINATH GUPTA Vs CCE 1994 (71) ELT 980 (T); PAREKH & CO. Vs 1994 (71) ELT 310 (T); KARUNGADAN ABDUL RAHMAN Vs CC & CE 1995 (77) ELT 333 (T); PUJA INTERNATIONAL Vs CC 1995 (76) ELT 69 (T); GAIN MAHTANI Vs STATE OF MAHARASHTRA 1991 (110) ELT 400 (SC).

5.9.12The term employed not “reason to suspect”: -

And, in other words, the term employed are “reason to believe” and not “reason to suspect” which has been used merely to safeguard a citizen against arbitrary action of government officers. If this safeguard is not strictly adhered to, the statutory authority will have unlimited power to enter and search the residence and office of the citizen anywhere in India whenever he likes. The validity of the search warrant must be judged on the basis of facts and information in the possession of the officer concerned at the time the search warrant is issued, the result of the search and seizure proceedings is quite immaterial for the purpose of deciding whether the warrant was issued lawfully or not.

5.9.13 The belief must be based on some information: -

The belief must be based on some information which is not only relevant but also is found to be more than a mere gossip or speculation and should not be based on a mere caprice, speculation or whim – ACC & CE Vs N. ASHOK AND OTHERS 1984 (16) ELT-202 (AP).

It is true that under sec. 165 (2) of Cr. P. C., the Court shall check-up whether irregularity had not taken place which had resulted in any injustice to the accused, but if the accused was aware when the search took place and the person was authorized to conduct it but did not object to such search and seizure, nor did adduce any evidence during the course or trial, it cannot be said that any injustice had accused to him or the search and seizure was conducted by an unauthorized person and was illegal – (16) ELT 2002 (AP) in ACC & CE Vs. W. ASHOK.

5.9.14 Statements [Sec.14 of the Central Excise Act, 1944]: -

Sec.14 of the Central Excise Act, 1944 lays down the power in the hands of a Gazetted Officer of Central Excise (Superintendent and above) to summon any person for giving evidence or producing documents necessary for any inquiry, which the summoning officer may be making for the purpose of the Act. The person must attend in response to summons and answer such questions as do not incriminate him. The exemptions under sections 132 and 133 of the Code of Civil Procedure, 1908 shall be applicable to requisitions for attendance, while the inquiry shall be a judicial proceeding within the meaning of section 193 and


228 of the Indian Penal Code 1860. In other words, the person is required to answer the question put to him under section 108 of the Customs Act, 1962 or Sec. 14 of the Central Excise Act, 1944 and on his failure to do so, he attracts penalties.

5.9.14A In this reference see also CBEC Circular No.F.No.137/39/2007-CX-4 dated.11-06-2007 for detailed analysis see Part V of this Book.

5.9.15 Retraction of confession: -

When the confession is retracted, the burden is on the accused to prove that confession was made under threat and only if accused is able to prove that it was not voluntary then onus shifts on Revenue to prove that it was voluntary – ACC Vs GOVINDASAMY RAGUPATHY 1998 (98) ELT 50 (Mad.).

Confessional statement of accused, if found to be voluntary, can form the sole basis for conviction. If the same has been retracted, the court is required to examine whether it was obtained by threat, duress or promise and whether the confession is truthful. If it is found to be voluntary and truthful, inculpatory portion of retracted confession could be relied upon to base conviction. However, prudence and practice requires that the court should seek assurance by way of corroboration from other evidence adduced by prosecution. A general corroboration would suffice, and not for each detail contained in the confessional statement. – K.I. PAVUNNY Vs A. C. (H.Q) CE 1997 (90) ELT 241 (SC).

5.9.16 Sec. 24 of the Indian Evidence Act, 1872: -

Any retracted confessional statement is inadmissible in evidence under sec. 24 of the Indian Evidence Act. The provision is reproduced as follows:

“24 Confession caused by inducement, threat or promise, when irrelevant in criminal proceeding”: - “A confession made by an accused person is irrelevant in a criminal proceeding, if the making of the confession appears to the Court to have been caused by any inducement, threat or promise, having reference to the charge against the accused person, proceeding from a person in authority and sufficient, in the opinion of the Court, to give the accused person grounds, which would appear to him reasonable, for supposing that by making it he would gain any advantage or avoid any evil of a temporal nature in reference to the proceedings against him.”

A bare reading of the above provision would indicate that for application of Section 24 of the Evidence Act, the following ingredient are required to be established:

(a) the statement in question is a confession;

(b) such confession has been made by an accused;


(c) it has been made to a person in authority;

(d) it was obtained by reason of any inducement, threat or promise proceeding from a person in authority;

(e) such inducement, threat or promise must have reference to the charge against the accused person; and

(f) the inducement, threat or promise must be, in the opinion of the Court is sufficient to give an accused person grounds which would appear to him to be reasonable by supposing that by making it, he would gain any advantage or avoid any evil of a temporal nature in reference to the proceedings against him.

5.9.17Admissibility of retracted confession: -

A retracted confession must be looked upon with greater concern unless the reasons given for having made it in the first instance are on the face of them false. Once the confession is proved satisfactorily, any admission made therein must be satisfactorily withdrawn or the making of it explained as having proceeded from fear, duress, promise or the like from someone in authority. A retracted confession is a weak link against the maker and more so against a co-accused – HAROON HAJI ABDULLA Vs STATE OF MAHARASHTRA, 1997 (110) ELT 309 (SC). In other words, a retracted confession cannot obviously go further nor have higher value.

5.9.18 How to assess a retracted confession: -

In the case of RAMESHWAR Vs STATE OF RAJASTHAN, 1952 SCR 377, the Supreme Court has laid down certain general rules about the nature of corroboration needed before accomplice evidence may be accepted. It has been pointed out that every detail of the story of the accomplice need not be confirmed by independent evidence although some additional independent evidence must be looked for to see whether the approver is speaking the truth and there must be some evidence, direct or circumstantial which connects the co-accused with the crime independently of the accomplice. One such circumstance may be the making of a number of confessions without a chance for prior consultation between the confession co-accused. But before even a number of such confessions can be used, each such confession must inspire confidence both in its content and in the manner and circumstances of its making. If there be any suspicion or false implication, the confession must be discarded as of no probative value. This may result from a variety of circumstances of which a few alone may be mentioned, such as why the accused confessed whether he expected a gain for himself by implicating his co-accused, the part he assigns to himself and that to his co-accused, the opportunity for being coached up to narrate a false story or a story false in certain detail. Where there is a single retracted confession corroborating other accomplice evidence, the caution must necessarily be still greater and


probative value smaller. Even if there are more than one such confession and they are proved to be given independently and without an opportunity for a prior concert, the probative value may increase but the need for caution remains because a number of suspects may be prompted by the same or different motives to embroil a particular individual. It is only when false implication is excluded after close scrutiny that confession of a co-accused can be used to lend assurance to other evidence. A retracted confession cannot obviously go further or have higher value – HAROON HAJIABDULLA Vs STATE OF MAHARASHTRA 1998 (110) ELT 309 (SC).

5.9.19 Effect of retraction: -

It is well settled law that confessional statement, when retracted at the first available opportunity, leads to the conclusion that it was not true and voluntary – SHANTILAL SONI Vs. CC&CE 1995 (78) ELT 151 (T). When the confessional statement was retracted within seven days and the same was sole basis of department case, the statement could not be called as having voluntary nature – BHAGWANDAS HARJPAL Vs CC [PREV] 1995 (78) ELT 80 (T). A retracted statement is a weak evidence only against an assessee – JITENDRA KUMAR GHISHULAL JAIN 1998 (103) ELT 591 (T). The fact that retraction was addressed to same officer who was recorded the statement, is no ground to reject the retraction - PREMPREET TEXTILE INDUSTRIES LTD Vs CCE 2001 (47) RLT 746 (T). In case of RAHAT HUSSAIN Vs CC (Prev), West Bengal 2001 (46) RLT 466 (T), it was held that the confessional statement retracted next day can not be the positive evidence in favour of the Department. In the case of LAXMI ENGG WORKS Vs CCE 2001 (47) RLT 302 (T), statement of employees were not offered for cross examination. Statements were also retracted. It was held that such statement could not be relied upon. In the case of STATE OF MAHARASTRA Vs SAYED MOHAMED NASHIM AL MUSAVI 1991 (51) ELT 41 (Bom) it was held that retracted confessional statement not to be relied upon without independent and full corroboration. In the case of LEONARDO VILLARICO Vs CC (PREV) 1991 (56) ELT 765 (T), it was held that a suspicious statement cannot be reliable. In the case of KALI CHARAN BASANT LAL Vs CCE 1989 (41) ELT 162 (T), it was held that whenever a confessional statement is retracted, it is the duty of the authority deciding the case, to take into consideration the said retraction while coming to a particular conclusion. For, retraction does affect the voluntary nature and truthfulness of the confessional statement. When the statement was immediately retracted, no importance can be attached to that part of the statement of the appellant which incriminates them as it was immediately retracted and stands discredited by evidence on record –See also K.R. PANDURANGAN Vs CCE 1989 (41) ELT – 131 (T); PRAKALATHAN BARLASAIT Vs CC 1989 (41) ELT – 265 (T), In case of PREMIER SOAPS AND DETERGENTS Vs CCE 1989 (40) ELT 197 (T), it was held that written statement retraction communicated after five days was not very late.

When the statement (which are subsequently retracted) are inconsistent with the documentary evidences, the documentary evidence is to be preferred – PHILIP FERNANDES Vs. CC AIRPORT 2002 (146) ELT – 180 (T).


5.9.20 Confession to be corroborated by at least one unimpeachable evidence: -

It is well settled law that in a trial and proprio- vigore in a criminal trial, courts are required to marshal the evidence. In a criminal trial punishable under the provision of the IPC, it is now well settled legal position that confession can form the sole basis for conviction. If it is retracted, it must first be tested whether confession is voluntary and truthful inculpating the accused in the commission of crime. Confession is one of the species of admission dealt with under sec. 24 to 30 of the Indian Evidence Act and Sec. 164 of the Code. It is an admission against the maker of it, unless its admissibility is excluded by some of those provisions. If a confession is proved by unimpeachable evidence and if it is of voluntary nature, it when retracted, is entitled to high degree of value as its maker is likely to face the consequences of confession by a statement affecting his life, liberty or property. Burden is on the accused to prove that the statement was obtained by threat, duress, or promise like any other person – BHAGWAN SINGH Vs STATE OF PUNJAB, AIR 1952 SC 214. If it is established from the record or circumstance that the confession is shrouded with suspicious features, then it falls in the realm of doubt. The burden of proof on the accused is not as high as on the prosecution. If the accused is able to prove the fact creating reasonable doubt that the confession was not voluntary or it was obtained by threat, coercion or inducement etc, the burden would be on the prosecution to prove that the confession was made by the accused voluntarily K. I. PAVUNY Vs A. C. (H.Q.) C E 1997 (90) ELT 241 (SC).

In the case of NDUKWE ONUOHE Vs ACCAIU, BOMBAY 1998 (101) ELT 17 (BOM), it was held (by following the decision in PURAN Vs PUNJAB STATE, AIR 1953 SC 459) that unless a retracted confession is corroborated in material particulars, it is not prudent to base a conviction in a criminal case on its strength alone. Section 24, 25,26,28,29, and 30 of the Indian Evidence Act lays down the situation and circumstances where a free mind can be vitiated. In this case, a retracted confession (even after two months later on when produced before the magistrate) was held as lost its evidentiary value because it was alleged as recorded under duress. Unless a retracted confession is corroborated in material particulars, it is not prudent to base a conviction on its strength alone.

Though a conviction based upon accomplice evidence is legal, the court will not accept such evidence unless it is corroborated in material particulars. Corroboration may be direct or circumstantial. One accomplice cannot corroborate another. If several accomplices independently, simultaneously and without previous concert give a consistent account of the offence implicating the accused, the court may accept the several statements as corroborating each other –MOHD. HUSSAIN UMAR KOCHARA Vs K. S. DALIP SINGH JI 1997 (110) ELT 347 (SC).

5.9.21 Confession to be voluntarily: -

In the case of SEVANTILAL KARSONDAS MODI Vs STATE OF MAHARASHTRA 1999 (109) ELT 41 (SC), the confession consisted of a plea as the result of an assault


on him by the Customs Officers, which had been denied by the officers but because of the circumstances under which the confession was taken, it was held that the confession was hit by Sec. 24 of the Evidence Act and was unsafe to treat the confession as voluntary and trustworthy.

Confessional statement recorded by the Customs Officer under Sec. 108 of the Customs Act, 1962 is not required to follow the safeguards provided under section 164 of the Code of Criminal Procedure, so if the high court have declined to accept that confessional statement was made under inducement, threat or physical assault, no interference could be called under Article 136 of the Constitution – GULAM HUSSAIN SHAIK CHOUGULE Vs S. REYNOLDS, SUPDT. OF CUS 2001 (134) ELT 3 (SC)

It is true that the authorities should not overstep their limit and third degree method should not be adopted for the purpose of getting statement as they like, and it has also been held uniformly that it is not function of the court to monitor investigation processes, and it must be left to the investigating agency to decide the venue, timings etc., the action of the authorities must be right, just and fair. The petitioner should not be tortured or subjected to third degree method, or his constitutional right should not be abridged, except in the manner permitted under the law. Since the respondents had fairly stated in the counter affidavit that they were not adopting any such third degree method and also they were not having any intention to do so, the court in KISHORE J. CHAWLA Vs UOI (117) ELT 4 (Mad.) refused to give any specific direction to the authorities regarding the same.

5.9.22 Inculpatory part & exculpatory part :-

When a part of the confessional statement is inculpatory and the other part is exculpatory, the former part is admissible in evidence. It was held that exculpatory part is inherently improbable and is contradicted by other evidence and is, therefore, unacceptable. The incriminating circumstances contained in the inculpatory part of the statement might be accepted to confirm the conviction of the capital offence – NISHIKANT JHA Vs THE STATE OF BIHAR 1969 (1) SCC 347.

If two parts of the statement are inextricably linked together and it is not possible to accept one part without accepting the other part, they may be read together. But if the inculpatory part of the statement of the accused is distinct and severable from the exculpatory part of the accused to be inherently improbable, there is no reason why the other part of the statement which implicates the accused and which the court sees no reason to disbelieve, should not be accepted – JETHAMAL PITHAJI Vs A.C.C. 1983 (13) ELT 1524 (SC).

5.9.23 Capacity of the person & revenue officers: -


In POOL PANDI, ETC. ETC. Vs SUPDT. C.E. 1992 (60) ELT 24 (SC), it was held that a person called for questioning during investigation by authorities under the Customs or Excise Act is not an accused person, so the presence of a lawyer during investigation is not the right of such person, so, in the case of KISHORE J. CHAWLA Vs UOI 2000 (117) ELT 4 (Mad.) the prayer for presence of their lawyer had been refused by the Court.

The Customs / Excise Officer is not a police officer, the person, to call for a statement is not having the capacity of an accused person at that stage, the statements are admissible in evidence and are not hit by sec. 25 of the Indian Evidence Act – ROMESH CHANDRA MEHTA Vs STATE OF WEST BENGAL, 1999 (110) ELT – 324 (SC); RAJA RAM JAISWAL Vs STATE OF BIHAR (1964) 2 SCR 752; HALARI SINGH Vs UOI 1999 (110) ELT – 406 (SC); R.C. MEHTA Vs STATE OF WEST BENGAL AIR 1970 SC 940.

In the case of A.C.C.E. Vs DUNCAN AGRO INDUSTRIES LTD. 2000 (120) ELT 280 (SC), it was held that a confession made to a police officer can be recorded by him without any of the constraints incorporated under Section 164 of the Code. But the safety of the confessor who makes such confession to the police officer is that the same is forbidden from use in evidence. The ban contained in Section 25 of the Evidence Act is an absolute ban. But it must be remembered that there is no ban in regard to the confession made to any person other than a police, except when such confession was made while he is in police custody. The inculpatory statement made by any person under Section 108 is to non-police personnel and hence it has nothing of inadmissibility in evidence if it was made when the person concerned was not then in police custody. Nonetheless the caution contained in law is that such a statement should be scrutinized by the court in the same manner as confession made by an accused person to any non-police personnel. The court has to be satisfied in such cases, that any inculpatory statement made by an accused person to a Gazetted officer must also pass the tests prescribed in Section 24 of the Evidence Act. If such a statement is impaired by any of the vitiating premises enumerated in Section 24, the statement becomes useless in any criminal proceedings.

5.9.24 Any statement could not be used without notice to the persons concerned:-

No doubt, without giving notice to the parties, if the statements are used and order is passed, the same vitiates the proceedings as same cannot be used against the persons concerned – CHARAN METAL CORPORATION Vs CCE 1998 (98) ELT 588 (All).

5.9.25 Confession of co-accused: -

A confession intended to be used against a co-accused stands on a lower level than accomplice evidence because the letter is at best tested by cross-examination whilst the former is not – NATHU Vs STATE OF UTTAR PRADESH AIR 1956 SC 56.


A statement of co-accused may be used as substantive piece of evidence, even against the petitioner – NARESH J. SUKHAWANI Vs UOI 1996 (83) ELT 258 (SC).

Conviction based solely on confession of co-accused without other material is not sustainable – STATE OF GUJARAT Vs HASMUKHLAL AMBALAL JARIWALA 1999 (109) ELT 51 (GUJ.)

Any incriminating statement made by any co-accused might be utilized so far as the makers thereof are concerned, but as against the other co-accused in the case standing themselves, they have hardly any evidentiary value – MANGILAL JAIN Vs S. N. BANERJEE, A.C.C. 2000 (126) ELT 381 (Cal).

When the Department is relying upon the statement of the co-notices while making adverse comments against the respective parties, it was the bounden duty of the adjudicating authority to bring out supporting materials on record on providing due opportunity to the assessee to meet the same. SAI KRIPA EXIM (P) LTD.Vs. CC.2003 (156) ELT – 225 (T).

5.9.26 The “any person” : - The word “any person” in Sec. 107 certainly covers every person including a suspect and potential accused. The expression has to be interpreted in the light of the policy and purpose of the law – BALKRISHANA CHHAGANLAL SONI Vs STATE OF WEST BENGAL 1983 (13) ELT 1527 (SC).

5.9.27 The right to take a copy of the statement: -

If the customs authorities had relied upon the statement made by the appellant at the time of search and seizure in order to reject his case but his request for copy of the statement and inspection of records was not granted, the customs authorities were not justified to rely upon certain alleged discrepancies in that statement to reject the appellants subsequent version – AMBA LAL Vs UOI 1983 (13) ELT 1321 (SC). 5.9.28 Statements to be perused as a whole: -

It is well settled law that if a document or statement is relied upon, the same must be relied upon as a whole, and not in a piecemeal i.e. only a part which is favourable to the Department – HANUMAT Vs STATE OF M.P AIR 1952 SC 343; PALVINDER KAUR Vs STATE OF PUNJAB, AIR 1952 SC 354. [(126) ELT 180 (BOM)]

It is settled rule of appreciation of evidence that the statement of a person should be read as a whole and not relied on a stray sentence – R K Industries Vs CC & CE 1989 (39) ELT 316 (T); SAMSUDDIN SHEIKH Vs CC (P) 1990 (47) ELT 58 (T) SHIRAN AHMED Vs UOI 1996 (82) ELT 467 (Del) BHUSHAN ALLOY & STEELS LTD. Vs CCE 1996 (81) ELT 426 (T). So, if the authority has found that a part of


the statement is incorrect, the other part must also be incorrect, is an error of law and not a reality of life – MOHAN ANAND Vs CC 1991 (53) ELT 96 (T); STATE OF MAHARSHTRA Vs PRITHVIRAJ POKHRAJ JAIN 2000 (126) ELT 180 (BOM.).

5.9.29 The term “ concerned”: - The phrase “concerned” would mean “interested in”, “ involved in” and “mixed up with” – SUPDT.C E Vs V.N. MALAVIYA, 2000 (125) ELT 381 (Mys); P.V. REGI Vs SUPDT. CE 2001 (129) ELT 593 (Mad)

5.9.30The duty of the revenue: -

If there is any evidence before the adjudicating authority, produced by the assessee, the authority is bound to consider and give reasons to either accept or reject whatever evidence produced before it – PRAVIN METAL WORKS Vs CCE 2001 (133) ELT 582 (T).

5.9.31 Conclusion for non appearance:-

Non-appearance in response to summons cannot be a factor or criteria in determining the guilty conduct – JASWINDER SINGH Vs CC 1996 (83) ELT 175 (T).

5.9.32Cross Examination: - 5.9.32.1 Proper opportunity for cross-examination is a legal requirement:

Every opportunity must be given to the accused for the purpose of cross examination of witness – C. KUYALAL Vs. Dy. DIRECTOR , NARCOTIC CONTROL BURENU, 2003 (161) ELT – 62 (Mad). Denial of cross-examination is a violation of the principal of natural justice – C.V. STEELS LTD Vs. CCE 2003 (161) ELT – 451 (T). Cross-examination ought to be permitted – MATTEL TOYS (INDIA) LTD. Vs. CCE & C (2003) 161 ELT - 484 (T).

Uncrossed examined statement of the witness can not be relied upon for proving the evasion of duty/tax against the assessee especially when those statements do not find corroboration from any other reliable evidence – TAKSHILA SPINNERS Vs. CCE 2001 (131) ELT – 568 (T) [also relied upon in HRS FIBRES (P) LTD Vs. CCE 2003(160) ELT – 363 (T)].

If the assessee is not given the opportunity to cross-examine the witnesses whose statements recorded at their back and relied upon by the Department, it has certainly resulted in miscarriage of justice, hence not permissible - STANDARD INDUSTRIES Vs CCE 2000 (118) ELT 59 (T).

Where the statements of witnesses are contradictory, the statements could not be accepted till the cross examination of such persons by the appellants – like wise, when the Revenue has not corroborated their statement or have


explained or given a different version then the statement looses its evidentiary value – NUTREND BUSINESS MACHINES (P) LTD. Vs. CCE 2002(141) ELT 119 (T).

5.9.32.2 It can be called even at the stage of personal hearing:-

When the appellant asks to afford opportunity of cross-examination of witnesses relied upon by the Department [even in the reply of the S.C.N. – LAXMAN EXPORT LTD. Vs CCE 2002 (143) ELT 21 (SC)] its refusal violates the principles of natural justice – NAGRAJ WALCHAND JAIN Vs G. KORUTHU, CCE 2000 (123) ELT 50 (Bin.); Even otherwise, without giving an opportunity for cross examination, any document or statement could not be relied upon UOI Vs T.R. VERMA, AIR 1957 SC 882; STATE OF MYSORE Vs SHIVABASAPPA, AIR 1963 SC 375. T.G. CHANDRA KUMAR Vs CCE 2000 (125) ELT 950 (T). Even the request for cross examination was made at the time of personal hearing, since the same, because of prior to conclusion of the personal hearing, must be granted – EMKAY INVESTMENT Vs. CCE 2003 (151) ELT – 361(T). 5.9.32.3 When witness was not available for cross-examination:

When witness, were not available for cross-examination by appellants, such statements shall be discarded – VALLABH ALLOYS LTD. Vs. CCE 2003 (157) ELT- 398 (T). On request of cross-examination of the witness, the adjudicating authority called upon them to disclose reasons with explanations, disallowing cross –examination was held as violation of the law of natural justice - CC Vs. AMRUTBHAI VASUDEAHAI PATEL – 2003 (156) ELT – 222 (T).

5.9.32.4 Denial of cross-examination is not permissible:

The opportunity for cross –examination could not be denied by taking the plea of loss of time as well as blockage of Revenue – ORIENT CABLE INDUSTRIES Vs. CCE 2003 (159) ELT 658 (T); when appellant them selves accepted the allegation, no prejudice shall be caused to him by denying opportunity of cross examination -ANOKA KOHLI Vs. CC 2003 (158) ELT – 225 (T); cross examination of certain dealers from whom the alleged goods recovered were not allowed, the demand was not sustainable – KANHAIYALAL & CO. Vs. CC 2003 (158) ELT – 631 (T).

When relied upon documents were not supplied and the cross examination of witness asked but not allowed, there was violation of the law of natural justice - JASS KANN INTERNATIONAL Vs. CCE 2003 (162) ELT – 445 (T).

In absence of cross-examination, truth of the same has to be accepted especially if it is substantiated by documentary evidence – SAIKOU JABPI Vs. STATE OF MAHARASTRA 2003 (158) ELT - 801 (SC)

The cross examination could not be denied on the ground of corroborated by the documentary evidences without indicating low the statement were corroborated – LAKSHMI PROCESSING MILLS Vs. CCE 2001 (130) ELT – 632(T).


In GLOBE SYNTHETICS LTD Vs. CCE 2003 (159) ELT – 228 (T), neither the company about clandestine removal nor the purchase about receipts of such goods were admitted. The basis of the Department was the statement of V.P. of the company based on the diary and loose sheets maintained by him, who had failed to disclose the basis of such entries, there was no corroboration to his evidence from any source also, and he failed to submit himself for cross-examination, it was held that the statement was not the basis to confirm the demand.

When statements are contradictory, the cross examination shall be required – VIJAY ENTERPRISES Vs. CCE 2002 (140) ELT – 395(T).

5.9.32.5 Effect of denial of cross-examination:

When there was no statement from the person to whom the goods were sold alleged; the manager who maintained private diary was not allowed for cross examination, the demand was not sustainable – SHABROC CHEMICALS Vs. CCE 2002 (149) ELT – 1020 (T). When matter referred before an expert or chemical examiner, the person must be allowed for cross-examination – JAI GANESH TEXTILE & WOLLEN MILLS PVT.LTD. 2002(149) ELT – 352 (T).

The non –availability of cross-examination of witness does not constitute a fatal flow in the order impugned where the Departments allegations were based on several documentary evidences- BEAUTY DYERS Vs. CCE 2001 (136) ELT – 339 (T)

In case when the assessee themselves voluntarily admitted, the denial of the request of cross examination of witness does not amount to violation of rule of natural justice – ANIL DAS Vs. CC 2002 (141) ELT- 135.

5.9.32.6There must be a specific request:

When cross -examination is not requested the same is not required - BESCO LTD. Vs. CCE 2001(137) ELT 168 (T); GAYAN CHAND SANTLAL JAIN Vs. UOI 2001 (136) ELT – 9 (Bom.) [Formal cross-examination may be a part of procedural justice but that does not mean that the content of natural justice excludes the right of cross-examination]

5.9.32.7 Burden to prove:

The burden of proof, when it lies on the prosecution shall affirmatively and conclusively be beyond an iota of doubt shall discharge the said onus, when such onus lies on the accused, the accused need not mathematical precision prove his case, a mere preponderance of probability is sufficient AIR 1966 SC 1742 referred in CCC Vs. RAJESH POLYFILM – 2002 (147) ELT – 425 (T).

5.9.32.8 When the statement was not recorded by a competent person:


When the statement has not been recorded by an empowered officer nor signed by the empowered officer and the officer who recorded the statement did not disclose his identify. It is not admissible evidence – D.M. GEARS PVT. LTD. Vs. CCE 2002 (141) ELT 514(T).

5.9.32.9 When a person is unqualified to make the statement:

When a person is found unqualified to make the statement, the same cannot be relied upon irrespective of it being not retracted or his being authorized representative of the company – AMTEK AUTO LTD. Vs. CCE 2002 (149) ELT – 1128 (T). So, in such a situation, the right of cross-examination should be called to prove his incapacity.

5.9.32.10 When cross-examination is not required:

The cross examination is not necessarily to be given in all cases. The fact of each case might be different. If a reasonable conclusion can be arrived at by examining the facts, the importance of cross-examination is minimized – PRAVEEN JUNEJE Vs. CC 2002 (148) ELT – 756 (T). Cross-examination is not sine qua non for departmental adjudication. When facts / evidence are not disputable, no useful purpose is going to be served by allowing cross examination – SRI RANJIT KR. SARKAR Vs. CCC (AIRPOST), CALCUTTA 2002 (148) ELT – 641 (T). If the statement of co-notices corroborated by another person – denial of cross -examination of co-notices not violated principal of nature justice – LAXMI Vs. CC 2001 (138) ELT 1090(T).

When opinion of an expert is only academic because of without testing of samples, cross-examination is not required TRIUMPH LEATHER (I) PVT. LTD. Vs. CC 2001 (130) ELT – 262 (T).

When documents found from the assessee’s premises were not disputed, there is no need for cross-examination of their employees by the assessee – COLUMBIA ELECTRONICS LTD. VS. CCE 2002 (143) ELT 635(T).

5.9.32.11 When the request has been allowed:

If request is allowed for cross-examinations, it is the duty of the Department to present witness for cross- examination. It is not sufficient for the Department to say that the witness was not presented – ARVIND KUMAR Vs. CCE 2001 (136) ELT – 439 (T).

When request for cross examination has been accepted, in mid of the proceeding, the same could not be terminating without disclosing that after all the genuine efforts made by the Department, the witness really could not found. Suitable steps should have been taken by the Department to enforce the attendance of the witness and if these steps were unsuccessful the results should have been disclosed to the assessee – KARTAR LAL PURAN MAL PARPIYANI Vs. CCE 2002 (142) ELT – 366 (T).


5.9.32.12 When right of cross-examination has been waived:

If ultimately the assessee himself gave up the prayer for examination of witness at the enquiry, subsequently, it cannot be allowed to make the grievance that the witness, when the assessee wanted to cross-examine were not produced and as such the adjudication proceeding is bad – ANNAPURNA OIL MILLS Vs ACCE 2000 (123) ELT 198 (Cal)

5.9.33 Role of suspicion: - Suspicion however grave it might be, can scarcely take the place of proof – KHARINATH GUPTA Vs CCE 1994 (71) ELT 980 (T); PAREKH & CO. Vs 1994 (71) ELT 310 (T); KARUNGADAN ABDUL RAHMAN Vs CC & CE 1995 (77) ELT 333 (T); PUJA INTERNATIONAL Vs CC 1995 (76) ELT 69 (T); GAIN MAHTANI Vs STATE OF MAHARASHTRA 1991 (110) ELT 400 (SC).

5.9.34 Panchnama: -

Since seizure and confiscation is a discretionary power in performance of statutory duties, it requires due care, reasonableness and good faith. And for this, panchnama is the culmination of the search and seizure proceedings. It is the most valuable contemporary document in relation to the conduct of the search and seizure proceedings.

A panchnama as such is unknown to law. What it signifies is that a list has been prepared in the presence of witnesses in accordance with sec. 103 of the Code of Criminal Procedure. Sec. 103 of the Code lays down that the search has to be made in the presence of two or more respectable witness who are inhabitants of locality and the search shall be made in their presence and a list of all things seized and placed where they are respectively found, shall be prepared and signed by such witnesses.

A panchnama is to be prepared in quadruplicate out of which one copy thereof, is to be given to the assessee along with its enclosures. Giving a copy to the assessee is a statutory requirement. In such panchnama, the descriptions of the location, position of the goods is extremely relevant. In the panchnama, at the end, there must be a declaration that “the search and seizure was conducted in the presence of witnesses in an orderly manner without hurting the sentiments of any of the occupants of the premises and nothing untoward happened during the course of search operation. In case any untoward incident took place, the facts relating thereto should be narrated in a separate sheet of paper and enclosed along with the panchnama.

5.9.35 Affidavit: -

It is well settled law that correspondences exchanged between the assessee and the Department are admissible evidences – TIPS & TOES COSMETICS (I) LTD Vs CCE 1994 (71) ELT 140 (T). In the case of PARLE BEVERAGES PVT LTD Vs


CCE 1998 (98) ELT 585 (SC), it was held that affidavit not to be brushed aside solely on the ground of delay. In the case of B.P.L. PHARMACEUTICALS LTD Vs CCE 1995 (77) ELT 485 (SC), it was held that affidavits could not be rejected as “manufactured evidence” or “as stereotyped evidence”. In the case of PADAMA K. GOKUL GANDHI Vs CC 1995 (78) ELT 265 (T) it was held that affidavit filed by party cannot be dismissed as of no consequence unless contra evidence is produced.

5.9.36 To refresh the memory by the person : -

And at last, when being interrogated under section 108 of the Customs Act, 1962 or Sec.14 of the Central Excise Act, 1944, if the appellant has been asked to refresh his memory and not evade questions by taking recourse to the plea of failure of memory, and give replies which must be directed and not evasive, the same shall be invalid. If he takes recourse to the plea of failure of memory that can well be recorded by the officer questioning him under the aforementioned provision. Necessary consequences and inference drawn may then follow. The appellant, in any event could not be directed to compulsorily take up his memory and give replies only in negatives or affirmatives, which in the language couched by the learned Single Judge “must be directed and not evasive”. The facts remains that appellant has to be available as directed for interrogation and in whatever manner or way he responds to the questions can well be made by the officer recording, pertaining to the demeanour of the appellant – AJIT JAIN Vs D. R.I. 1998 (102) ELT 521 (SC). Similarly, when the Department seized the entire records of the assessee, the assessee must have the right to recover the Xerox copies of the entire records, so, till supply of such Xerox copies, the assessee have the power to refuse to appear before the authority to give the reply of the summon, so, the legal right must always be claimed in writing. If the documents are not relied upon, the Department is duty bound to return the same because the Department has no authority under the law to keep the records with it. If the documents are relied upon, Xerox copies of such entire documents must be supplied to the assessee.


5.10. PENALTY – Sec. 75 to Sec. 81

In reference to various procedural defaults for service tax levy in terms of the Finance Act 1994, the penal consequences in brief, are as follows:

(a) Sec. 75 – see the title “interest” under Chapter 5.11 of Part II of this Book.

(b) In case of failure to pay service tax within specified period, the penalty imposed was not less than one hundred rupees for every day during which such failure continues and not more than two hundred rupees for every day during which such failure continues. And, such penalty shall not exceed the amount of service tax that he failed to pay. However, by the Finance Act, 2006, the amount of penalty shall be Rs.200/- per day or 2% of such tax per month whichever is higher [which shall not exceed the amount of service tax payable] – Sec. 76.

(c) In case of contravention of any provisions, where no separate penalty is prescribed, penalty may be imposed upto an amount not exceeding rupees one thousand – Sec. 77.

(d) In case of furnishing inaccurate value of taxable services, or suppressing the value of taxable service, by which there is an evasion of service tax, the penalty imposed shall not be less than the amount of service tax sought to be evaded and not more than twice of such tax evaded by the reason of suppression, concealment or furnishing inaccurate figure with intent to evade such payment.

In case where the value of such service suppressed, shall be more than Rs. 2,00,000/- (previously, i.e. prior to the Finance Act 2002, the limit was Rs. 25000/-) there must be a prior approval from the C.C.E in jurisdiction - Sec. 78.

The Finance Act, 2003 stipulates a provision for reduction of penalty, which lays down that the penalty shall be to the extent of twenty five percent of amount of service tax determined under section 73(2) along with interest and such 25% of service tax as penalty has been paid within 30 days from the date of communication of order. The benefit is


available only where the service tax along with such reduced penalty so determined, has been paid within the period of 30 days as referred to in that proviso. The provision will also be same where the service tax has been increased during the appeal by the appellate authority.

(e) If the assessee proves that there was a reasonable cause for failure on his part, any penalty under Sec. 77 & 78 shall not be imposable – Sec. 80.

(f) Offences by companies: Sec. 81 has been omitted by the Finance (No. 2) Act, 2004.

5.10.1 Penal consequences; nature of the provisions:-

Every statute enacted is with policy considerations even within a statute, different provision contains their own colour and theme. Some provisions are for remedies while others are for controlling certain misconducts or crime. And both types of provisions may also contain certain penal consequences because not following such specific direction.

So far as the scope of exception is concerned, it shall be construed differently because of the nature of provisions of the statute. Consideration while construing the criminal laws shall be different in comparison to construing civil or taxing laws. For example, in case of remedial laws, when two constructions are possible, the interpretation according to the policy shall prevail – ALEMBIC CHEMICAL WORKS Vs WORKMEN, AIR 1961 SC 647; REGIONAL PROVIDENT FUND COMMISSIONER Vs SHIBA METAL WORKS AIR 1965 SC 1076; ALL INDIA REPORTER KARMCHARI SANGH Vs ALL INDIA REPORTER LTD. AIR 1988 SC 1325; accordingly, any doubt shall be resolved in their favour – JIVABHAI Vs CHHAGAN, AIR 1961 SC 1491.

5.10.2 Construction of an exception: -

However, in case of construction of an exception to curtail the operation of beneficial statute, it requires strict construction to restrict the scope of exception – VADDEBOYINA TULSAMMA Vs VADDEBOYINA, AIR 1977 SC 1944; SHIVRAM ANAND SHIROOR Vs MRS. RADHABAI SHANTARAM KOUSHIK, AIR 1984 SC 786; SKANDIA INSURANCE LTD. Vs KOKILABEN CHANDRABADAN, AIR 1986 SC 1184. In such a situation, right of person shall not be restricted by employing liberal construction – JHAN RANJAN SENGUPTA Vs ARUN KUMAR BOSE, AIR 1975 SC 1994. And in case where there is a doubt about imposition or measurement of tax or duty, the benefit shall be given to the assessee – CIT Vs NAGA HILLS TEA CO. LTD., ITR 1973 SC 2524; CIT Vs SHAHZADA NANDA & SONS (1966) 60 ITR 392 (SC) .The rule is similar in case of imposition of penal consequences- CIT Vs VEGETABLE PRODUCTS LTD. (1973) 88 ITR 192(SC).

5.10.3 Penal consequences- how to be tested?


The rule is similar in case of imposition of penal consequences – CIT Vs VEGETABLE PRODUCTS LTD. (1973) 88 ITR 192 (SC). An exemption being a freedom from liability, tax or duty (unlike charging provisions), has to be tested at different touchstone and construed strictly against the subject – UOI Vs WOOD PAPERS LTD. 1990 (47) ELT (SC), but the rule is not applicable for procedural part of the exemption notification – MANGLORE CHEMICALS & FERTILIZERS LTD. Vs DY. COMMISSIONER 1991 (55) ELT 437 (SC) except where liberal interpretation about a procedural condition is likely to facilitate commission of fraud and introduce administrative convenience – INDIAN ALLUMINIUM CO. LTD. Vs THANE MUNICIPAL CORPORATION 1991 (55) ELT 454 (SC), or where procedural condition is being a substantive one, the same could not be construed liberally.

When contracts and transactions are prohibited by a statute because of proving a protection to one class of persons from others, the one from their situation and condition being liable to be oppressed and imposed upon by the other, then the parties are not in pari delicto and a person belonging to oppressed class can apply for redress even if he was a party to a contract or transaction prohibited – MOHD. SALIMUDDIN Vs MISRILAL, AIR 1986 SC 1019.

5.10.4 The burden to prove: -

It is well settled law that the burden to prove that the case of the accused falls within an exception to a statutory offence, lies on him. But the question whether the defence set up by an accused is really a defence of an exception or a defence setting up non-existence of a fact which is an ingredient of the offence to be proved by the prosecution depends upon the construction of the particular statute, see R .Vs HUNT (1987) 1 ALL ER 1 (HL). If the linguistic construction does not clearly indicate the Parliament’s intention, regard should be had to the mischief at which the act is aimed and practical considerations affecting the burden of proof and, in particular, the ease or difficulty that the respective parties would encounter in discharging the burden. – NIMMO Vs ALEXANDER COWAN & SONS LTD., (1967) 3 ALL ER 187 (HL).

5.10.5 Classification of the breach of the law: -

The propositions in this reference could be inferred in the following classification:

(1) If the prohibitory words in their known signification cover only some class of persons or some well-defined activity, their import cannot be extended to cover other persons or other activity on considerations of policy or object of the statute.

(2) If the prohibitory words are reasonably capable of having a wider as also a narrower meaning and if there is no clear indication in the statute on its policy or object that the words were used in the wider sense, they would be given the narrower meaning.


(3) When the prohibitory words are equally open to two constructions, one of which covers the subject and the other does not, the benefit of construction will be given to the subject.

(4) If the prohibitory words in their known signification bear a wider meaning which also fits in which the object or policy of the statute, the words will receive that wider meaning and their import will not be restricted even if in some other context they can bear a narrower meaning.

(5) If the literal reading of the prohibitory words products an intelligible or non-sensual result, but the statute read as a whole gives out its meaning clearly, effect will be given to that meaning by curing a mere defect in phraseology.

5.10.6 Existence of a guilty intent: -

The maxim - “ACTUS NON FACIT REUM NISI MENS SIT REA” stipulates that existence of a guilty intent is an essential ingredient of a crime i.e. innocent mistake shall not attract penal consequences. And the intent could be classified in two categories – one in basic intent while another is specific intent – DIRECTOR OF PUBLIC PROSECUTIONS Vs MAJEWSKI (1976) 2 ALL ER 142 (HL) which means different things in relation to different crimes – DIRECTOR OF PUBLIC PROSECUTIONS Vs MORGAN (1975) 2 ALL ER 347 (HL).

When a statute creates an offence, the question of involving mens rea as an essential element could always be raised i.e. whether the liability is strict or whether or whether the breach of the law could be condoned because of not having guilty mind.

5.10.7 The quantum of penal consequences depends upon the nature of offence: -

Where statute creates an offence, the quantum of penal consequences depends upon the nature of offence (i.e. whether the liability is strict or mens rea is required condition). And to find out such character, the expressions and structure of the statute as a whole must be perused and analyzed. Even in cases where the liability is strict, the penal consequences should not be extremely harsh, excessive and unreasonable bearing in mind the bonafides of the appellant, because the employment of such discretion by the appropriate authority is in performance of their statutory duties. So, the imposition is a mandatory condition but the quantum can be NIL.

It is a well settled law that unless a statute either clearly or by necessary implication rules out mens rea as a constituent part of a crime, a defendant should not be found guilty of an offence against the criminal law unless he has got a guilty mind – BREND Vs WOOD, (1946) 175 LT 306; NATHULAL Vs STATE OF M.P., AIR 1966 SC 43; INDER SAIN Vs STATE OF PUNJAB, AIR 1966 SC 43.when the statute of an accused persons mind and his knowledge being an


essential ingredient of an offence, it shall be barred on facts as such person believed them to be – R. TAAFEE (1974) 1 ALL ER 747 (HL); WESTMINISTER CITY COUNCIL Vs CROYALGRANGE LTD.(1985) ALL ER 740 (CA); SWEET Vs PARSLEY (1969) 1 ALL ER 347 (HL); PHARMACEUTICAL SOCIETY OF GREAT BRITAIN Vs STORKWAM LTD. (1986) 2 ALL ER 635 (HL); STATE OF MAHARASHTRA Vs M.S.GEORGE, AIR 1965 SC 722. and to identify the same, regard must be had to the statute and to the subject matter with which it deals – YEANDEL Vs FISHER (1965) 3 ALL ER 158; WINGD LTD. Vs ELLIS (1984) 3 ALL ER 577(HL). and for the same policy considerations and the effects shall also be taken into account – INDO CHINA STEAM NAVIGATION CO. Vs JASJIT SINGH, AIR 1964 SC 1140; STATE OF MAHARASHTRA Vs M.H. GEORGE AIR 1965 SC 722; WARNER Vs METROPOLITAN POLICE COMMR. (1968) 2 ALL ER 356 (HL).

5.10.8 Analysis of economic offences: -

So far as economic offences are concerned, the same shall be assessed on different touchstone – R.S. JOSHI Vs AJIT MILLS, AIR 1977 SC 2279 specifically where there is a grave social evil – STATE OF MAHARASHTRA Vs M.H.GEORGE, AIR 1965 SC 722.

5.10.9 Where the compliance is strict: -

The rule is also not applicable where the compliance is strict, the penal consequences because of breach of law shall not be condoned on the ground of not having any guilty mind – PHARMACEUTICAL SOCIETY OF GREAT BRITAIN Vs STORKWAM LTD. (1986) 2 ALL ER 635 (HL) and it is sufficient to prove that a default in complying with the statute has accused to penalize him – GUJRAT TRAVANCORE AGENCY Vs CIT 1989 (42) ELT 350 (SC).

5.10.10 How to identify the nature of compliance?

Any legislation is actuated with some policy and objects, so there are conditions out of which some are for policy considerations while others belong to the area of procedure. So, all the stipulations could not be construed on the same footing.

A penal consequence means an imposition because of disobedience of the law, so the same requires a strict construction, but subject to the ideology and objects behind the provision.

5.10.11 The term “evasion”: -

The term “evasion” had been defined by Justice Grove in two ways – one is an evasion of the tax by some thing by which the evasion is within the Act while another may mean an evasion of the tax by doing something to which the Act does not apply – A.G. Vs. NOYES (1881) 8 QBD 125. In other words, one suggests underhand dealing and another means nothing more than the intentional avoidance of something disagreeable – LORD HOBHOUSE in SIMMS Vs. REGISTRAR OF PROBATES (1900) AC 323 (PC). A levy can be evaded by


breaking the law or avoided in terms of the law – PUNJAB DISTILLING INDUSTRIES Vs. CIT AIR 1965 SC 1862, and because of contravention of the law – JEFFRIES Vs. ALEXANDER (1860) 8 HCL 594, penal consequences would be invoked.

5.10.12 Reasonable construction: -

It is well settled law that while construing reasonably, if there are two views i.e. there is a doubt, it must be interpreted strictly, but the results are different, depends upon the nature of the provisions and the context. For example, when there is two views i.e. doubt about the imposition or measurement of the levy, the benefit shall be given to the assessee – CIT Vs NAGA HILLS TEA CO. LTD., AIR 1973 SC 2524; CIT Vs SHAHZADA NANDA & SONS (1966) 60 ITR 392 (SC). The rule is similar in case of imposition of penal consequences – CIT Vs VEGETABLE PRODUCTS LTD. (1973) 88 ITR 192 (SC) So any uncertainty or vagueness in the legislative scheme defining any of these components of the levy will be fatal to its validity – GOVIND SARAN GANGA SARAN Vs CST (1985) 155 ITR 144 (SC).

5.10.13 When offence is bona-fide: -

It is well settled law that the following terms expressed by the Supreme Court in HINDUSTAN STEEL LTD. Vs STATE OF ORISSA (1972) 83 ITR 26 (SC):

Where penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority is competent to impose the penalty, when there is a technical breach of the provisions of the Act or the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute…………..”,

is not a rule of thumb. Whether the imposition of penalty in itself is discretionary or whether quantification is discretionary, it depends upon the text and context. And to find out such character, the expressions and structure of the statute as whole must be perused and analysed. –AKBAR BARUDDIN JIWANI Vs. CCE. 1990 (47) ELT – 161 (SC); TAMILNADU HOUSING BOARD Vs. CCE 1994 (74) ELT – 9 (SC); CCE Vs. HMM LTD 1995 (76) ELT-497 (SC). When the issue involved is a question of interpretation, there was no intent to evade payment of duty – PADMINI PRODUCTS Vs. CCE 1991 (39) ELT – 195 (SC). When demand of duty itself is set-aside, penalty is not imposable - H.GURU INVESTMENT (NORTH INDIA) PVT. LTD. Vs. CEGAT – 1998 (104) ELT- 8 (All). Penalty is also not imposable to recover interest loss – DEW LTD Vs. ACCE 1996 (88) ELT – 31(Mad.) Mentha & Allied Products Ltd. Vs. CCE 2004(167) ELT-494 (SC)ECE Industries Ltd. Vs. CCE 2004(164) ELT-236(SC)-when case was adjudicated previously.

5.10.14 How to determine the quantification?


Where a statute creates an offence, the quantum of penal consequences depends upon the nature of offence (i.e. whether the liability is strict or mens-rea is required condition). And to find out such character, the expressions and structure of the statute as a whole must be perused and analyzed. Even in cases where the liability is strict, the penal consequences should not be extremely harsh, excessive and unreasonable bearing in mind the bonafides of the appellant, because the employment of such discretion by the appropriate authority is in performance of their statutory duties. So, the imposition is a mandatory condition but the quantum can be Nil.

Since employment of such power is at discretion, such statutory power must be exercised in good faith, for the purpose (for which they are granted) by regarding all the relevant considerations and legitimate reasons with following the rule of law. Even otherwise, because of exercising for extraneous and irrelevant considerations, it is colourable exercise of power or fraud and in this way, exercise of the power is invalid and vitiated – COLLECTOR Vs. RAJA RAM JAISWAL AIR 1985 SC 1622.

It is well settled law that all the provisions, i.e. the stipulations of the law should not be construed on equal importance irrespective of the purposes for which they are intended to be served. Non-compliance of a provision would reflect entirely different result (even if there is no mala-fide intention) if the condition is a substantive one and one fundamental to the policy underlying the provision. Its stringency and mandatory nature must be justified by the purpose intended to be served. The mere fact that it is statutory does not matter one-way or the other. The Supreme Court in the case of MANGALORE CHEMICALS & FERTILIZERS LTD. Vs. DEPUTY COMMISSIONER 1991 (55) ELT 437 (SC) expressed that there are conditions and conditions. Some may be substantive, mandatory and based on considerations of policy and some others may merely belong to the area of procedure. It will be erroneous to attach equal importance to the non-observance of all conditions irrespective of the purposes they are intended to serve. A distinction between the provisions of statute which are of substantive character and have been built-in with certain specific objectives of policy on the one hand and those, which are merely procedural and technical in their nature on the other, must be kept clearly distinguished.

Where the compliance is strict i.e. where there is no choice to establish mens-rea, it is sufficient to prove that a default in complying with the statute has occurred to penalize him – GUJRAT TRAVANCORE AGENCY Vs. CIT 1989 (42) ELT 350 (SC).

5.10.15 The amount of penalty is always discretionary: -

The term “liable” means the imposition of penalty is imperative and not discretionary, only the amount of penalty is discretionary – ZUNJARRAO BHIKAJI NAGARKAR Vs. UOI 1999 (112) ELT 772 (SC), while the term “shall be liable to pay equal to …… times of the amount of tax” lays down only the maximum amount of penalty which could be levied and the assessing authority has the discretion to levy lesser amount, depending upon the facts and circumstances


of each case – STATE OF M.P. Vs. BHARAT HEAVY ELECTRICALS LTD. 1998 (99) ELT 33 (SC).

And in terms of section 80 of the Finance Act, 1994, the nature and conditions the adjudicating authority must analyze i.e. reasons of such default. It is not a mere discretion, but it is their duty.

5.10.16 Scope of penalty: -

If there is a mistake, the same could not be equalized with the misrepresentation-BHARAT ELECTRONIC LTD Vs. CCE 2004 (165) ELT-485 (SC) unless there is some positive act- EASLAND COMBINES COIMBATORE Vs. THE COLLECTOR OF CENTRAL EXCISE, 2003(152) ELT 39(SC) which means mere failure to pay tax or take registration [which is not due to any fraud, collusion or willful mis-statement or suppression of fact or contravention of any provision] is not sufficient to attract the extended period of limitation. However mistake of fact is different from misrepresentation – ICHALKARANJI MACHINE CENTRE PVT LTD Vs CCC 2004(174) ELT 417(SC); or where the violation was with sole intention to evade tax- SONY INDIA LTD Vs. EEC 2004(167) ELT 385(SC). When there is a difference of opinion, extended period of limitation is not applicable – UGAM CHAND BHANDARI Vs. CCE 2004(167) ELT 491 (SC). Where on identical issue, there was a show cause notice issued earlier which had been dropped an extended period is not applicable – HYDERABAD POLYMERS (P) LTD Vs. CCE 2004(166) ELT –151(SC).

Where the material fact was never disclosed in classification list or in any correspondence on subject where as it was disclosed in respect of other units, an extended period is applicable- CCE Vs HINDUSTHAN ZINC LTD 2004 (166) ELT-145 (SC). Where the applicability of limitation was never contested by the assessee at initial stage but the matter was decided on merit, the matter shall not be deemed to be barred by limitation- CC Vs. B.V.JEWELS 2004(172) ELT-3 (SC).

Where the duty or tax has been paid before the effect of the show cause notice, it would not make a difference whether such duty or tax was paid before or after intervention by the departmental officers in any form or manner, interest or penalty is not leviable – AL FALAH (EXPORTS) Vs. CCE 2006(198) ELT-343 (T-LB); CCC Vs. MACHINO MONTELL (I) LTD 2004 (168) ELT –466(T-LB).

And at last where there is a suppression of fact or not is a question to be decided on facts of each case- CCE Vs. MAHINDRA & MAHINDRA LTD 2004(171) ELT –159(SC), though for detailed analysis and scope, the issue has been referred before the large bench [see(171) ELT-159 (SC)] in reference to the CENVAT Credit. While, any mistake on record could be corrected as soon as brought to the notice.

5.10.17 Consequences of not imposing the penalty:-


Now, the question would be, merely because penalty imposable has not been imposed, which was obligatory for the officer to impose, could it be said that if it is a case of misconduct and he is liable to be proceeded against? On a reference, the Supreme Court held that a wrong interpretation of law couldn’t be a ground for misconduct. Of course, it is a different matter altogether if it is deliberate and actuated by, mala-fides. When penalty is not levied, the assessee certainly benefits. But, it cannot be said that by not levying the penalty, the officer has favoured the assessee or shown undue favour to him. There has to be some basis for the disciplinary authority to reach such conclusion. Even prima facie, initiation of disciplinary proceedings against an officer cannot take place on information, which is vague or indefinite. Suspicion has no role to play in such matter. There must exist reasonable basis for the disciplinary authority to prove against the delinquent officer. The Supreme Court further held that if every error of law was to constitute a charge of misconduct, it would impinge upon the independent functioning of quasi-judicial officers. To maintain any charge sheet against a quasi-judicial authority, something more has to be alleged than a mere mistake of law e.g. in the nature of some extraneous consideration influencing the quasi-judicial order. Without such, the charge sheet is rendered illegal. The charge sheet if sustained will thus impinge upon the confidence and independent functioning of a quasi-judicial authority. The entire system of administrative adjudication (where under quasi judicial powers are conferred on administrative authorities) would fall into dis-repute if officers performing such functions were inhibited in performing their functions without fear or favour because of the constant threat of disciplinary proceeding – ZUNJARRAO BHIKAJI NAGARKAR VS. UOI 1999 (112) ELT 772 (SC).

And in the case of S. GOVINDA MENON VS. UOI AIR 1967 SC 1274, it was held that the disciplinary action could be taken in the following case: -

1. Where the officer had acted in a manner as would reflect on his reputation for integrity or good faith or devotion to duty;

2. If there is prima facie material to show recklessness or misconduct in the discharge of his duty;

3. If he has acted in a manner, which is unbecoming of a Government servant;

4. If he has acted negligently or that he omitted the prescribed conditions which are essential for the exercise of the statutory power;

5. If he had acted in order to unduly favour a party;

6. If he had been actuated by corrupt motive, however, small the bribe may be because Lord Coke said long ago “though the bribe may be small, yet the fault is great”.


The instances above catalogued are not exhaustive, however, it may be added that for a mere technical violation or merely because the order is wrong and the action not falling under the above enumerated instances, disciplinary action is not warranted. Each case will depend upon the facts and no absolute rule can be postulated - see also V.D. TREVEDI Vs. UOI (1993) 2 SCC 55; UOI Vs. R.K. DESAI (1993) 2 SCC 49; UOI Vs. A.N. SAXENA (1992) 3 SCC 124. Notification No.30/2005 ST dt.10/08/2005, power of adjudication for penalty under Part V of this Book.


5.11. IMPOSITION OF INTEREST

In case of default of the payment of the tax, there is a simple interest at such rate as specified by the Government for the period by which the crediting of the levy or any part thereof is delayed – Sec. 75. The Finance (No.2) Act, 2004 has modified the rate, which is now 13% per annum vide Notf. No. 26/2004 S.T. dt 10-09-2004.

Just like charging section [which must be construed strictly but not merely on the basis of spirit of Law – [A.V.S. FARNANDES Vs STATE OF KERALA, AIR 1957 SC 657; MURARILAL Vs B.R.VAD AIR 1976 SC 313], penalty provisions shall be construed strictly – J. K. SYNTHETIC LTD. Vs C.T.O. (1994) 94 STC 422 (SC). So far as the taxability (i.e. charging section) or its penal consequences is concerned, the subject is not to be taxed without clear words for that purpose, according to the natural construction of its words. ST. AUBIN Vs A.G. (1951) 2 ALL ER 473 (HL), there is no room for any intendment, there is no equity about a tax, there is no presumption to tax, nothing is to be read in, nothing is to be applied – CANADIAN EAGLE OIL CO. LTD. Vs R (1945) 2 ALL ER 499 (HL); TARULATA SYAM Vs CIT AIR 1977 SC 1802 [(1977) 108 AIR 345 (SC)], FISCAL MEASURES ARE NOT BUILT UPON ANY THEORY OF TAXATION –CC Vs TOP TEN PROMOTIONS (1969) 3 ALL ER 39 (HL).

For example, in the term “........... shall pay………….” which does not mean actual payment has to be made before the expiry of the stipulated time” – MODI FOOD PRODUCTS LTD. Vs CST, AIR 1956 ALL 35. In other words, the language as a whole must be perused by considering each and every part along with surrounding circumstances also.

Since the term “discretion” refers a choice among competing considerations –SUNIL MEHDIRATTA Vs UOI 2002 (146) ELT -281 (Del.) it must be exercised honestly and in spirit of the statute and not be arbitrary, but whether imposition is a discretion, depends upon the text and context.

In order to ensure prompt collection of the tax due, certain penal provisions are provided which are not called as machinery provisions. The machinery provisions are for the smooth and effective collection as well as operation for measurement and assessment of the levy.

In order to pay the levy within the specified point of time, if there is any failure, there may be a provision to pay interest also, at a specified rate effective during the period of failure. It means it is not a discretion, not a penal consequence but a compensation due to delay occurred by or on account of the taxpayer –CIT Vs M. CHANDRASEKHAR (1985) 151 ITR 433 (SC); CENTRAL PROVINCES MANGANESE ORE CO. LTD. Vs CIT (1986) 160 ITR 961 (SC).

But even then, because of based on the strength of a statutory provision, the court must give that meaning to it as is conveyed by the language used and the purpose to be achieved. In other words, any provision made in a statute for charging or levying interest on delayed payment of tax must be construed as a


substantive law and not adjectival law –J. K. SYNTHETICS LTD. Vs CTO (1994) 94 STC 422 (SC).

Since the interest is a separate substantive provision as a compensation for delay in payment of tax while penalty is a penal consequence on account of breach of law, so, there shall not be called as two penal consequences on the same incidence. Both shall be construed separately in terms of the language employed along with surrounding circumstances.

For example, Sec. 158 BFA (1) of the Income Tax Act, 1961 imposes an interest for specified period. Out of the whole provision, an expression employed is “……. shall be liable to pay ……….” at the rate of “……”.

Since the language is “liable” which is mandatory, while the term “at the rate of” does not mean maximum but it refers a fixed term. In other words, imposition of interest is the statutory duty of the concerned authority in jurisdiction. On the other hand, under sec. 11AB of the Central Excise Act, 1944 the phrase employed is “…….. shall, in addition to the duty, be liable to pay interest at the rate …….” The term “in addition to” refers the same as equal to the duty; however, under sec. 75 of the Finance Act, 1994 [in respect of delay in payment of service tax]., the expressions employed are “……shall pay simple interest…….”. Naturally, because of the language employed, the nature and collection, in all these examples, are not the same.

Now, the issue is whether charging the interest under the Central Excise Law is discretionary power, the answer is negative because it is his statutory duty because of employing the term “liable to” – ZUNJARRAO BHIKAJI NAGARKAR Vs UOI 1999 (112) ELT -772 (SC). However under sec. 75 of the Finance Act, 1994, the expression employed are “…….shall pay in addition to paying such tax ……” .

Even the quantification is also not discretionary because of employing the term “at the rate of” which does not mean the maximum i.e. discretionary but lays down a fixed term. And because of the same, it is not required that there must be a prior show cause notice or opportunity before charging the interest, but ultimately depends upon the text and context.

Now the issue is if the adjudicating authority has failed to impose any interest on the face of order, whether interest shall be recovered? Whether it could be assumed as waiver of such interest? Whether an appeal could be filed against the same? If there is no specific provision for filing for an appeal against the imposition of interest, then because of a statutory right, unless there is a specific provision, an appeal could not be filed against the charging of interest. In such a situation assessee can certainly challenge levy of interest in a writ jurisdiction – CENTRAL PROVINCES MANGANESE ORE CO. LTD. Vs CIT (1986) 160 ITR 961 (SC). However, in the quantum appeal, the levy of interest could be an issue, but penalty is not imposable to recover interest loss – DCW LTD Vs. ACCE – 1996 (88) ELT- 31 (Mad.)


Where the Department action was a forced action, petitioner was not liable to pay tax or duty, but paid the same upon insistence of the Department, the revenue shall be liable to pay interest from the date of payment made to the Department – GOLD STONE ENGINEERING LTD Vs UOI –2005(181) ELT-11 (AP) , the act recognized the principle that a person should only be taxed in accordance with the law and hence where excess amount of tax are collected from an assessee or any amounts are wrongfully withheld from an assessee with out authority of law the revenue must compensate the assessee - SANDVIK ASIA LTD V/S COMMISSIONER OF INCOME TAX- PUNE-2006(196) ELT 257 (S.C.), and in such a situation, duty or tax has been deposited [prior to issue of the show cause notice] even after intervention by the departmental officers in any form or manner, no penalty or interest is leviable- AL FALAH (EXPORTS) Vs. CCE 2006(198) ELT-343 (T-LB); CCC Vs. MACHINO MONTELL (I) LTD 2004 (168) ELT –466(T-LB).

And at the end, since the interest is a separate substantive provision of law, so, if the adjudicating authority has failed to issue any direction in their order about imposition of such interest, it could not be imposed through notice of demand –CIT Vs RANCHI CLUB LTD. (2001) 247 ITR 209 (SC). It means subject to the provisions of the statute before imposition of any interest, the law of natural justice should be required to be followed. That is the essence.


5.12. REVISION

As per Section 84 of the Finance Act, 1994 (as amended), the Commissioner of Central Excise may call for and examine the records of any proceedings taken by the Assistant / Deputy Commissioner of Central Excise, subordinate to him, and may cause inquiry and pass such orders thereon as he may think fit but no order prejudicial to the assessee shall be passed unless he is given an opportunity of being heard.

No order of revision under section 84 shall be passed if the appeal against such issue is pending before the Commissioner (Appeals).

The order of revision under said Section 84 cannot be passed after expiry of two years from the date of the order, which is sought to be revised.

By the Finance Act, 2002, the Central Government has the power to issue any notification (in the manner specified in section 95 of the Finance Act 1994), in reference to implementing or assessing the value of any taxable service incorporated by the Finance Act, 2002. Such order could be issued within 2 years from the date of coming into force of such levy.

Now, the Commissioner of Central Excise in jurisdiction has a power to revise an order, which does not mean to review an order to direct the adjudicating authority to file an appeal- NAVIN CHEMICAL ENTERPRISES Vs. CCE 2002 (141) ELT (T). It is also relevant to point out that in revision, the scope of original proceedings could not be extended by him – STATE OF HARAYANA Vs. DASAUNDA SINGH WARYAM SINGH (1996) 103 STC 128 (P&H) which mean the reversionary power may be employed to the extent of examination of the legality and propriety of the order passed there in by the adjudicating authority. In other words, the reversionary proceeding shall not go behind the scope of the show cause notice issued by the adjudicating authority- MARKFED OIL AND ALLIED INDUSTRIES Vs. CCE 2002 (53) RLT 276 (T).

In this section, the words “the records of any proceeding” have been employed, which would mean the records of the entire proceedings including documents and materials produced by the assessee, which were available while passing the order. However, it does not include any fresh evidence or new documents - MAHARANA MILLS (P) LTD. (1959) 36 ITR 350 (SC); GAMMON INDIA LTD. (1995) 214 ITR 50 (Bom.).


5.13. CLASSIFICATION OF SERVICE

(1) Classification of taxable service shall be determined according to the terms of the sub-clauses of clause (105) of section 65.

(2) When for any reason, a taxable service is, prima facie, classifiable under two or more sub-clauses of clause (105) of section 65, classification shall be effected as follows:

(a) the sub-clause which provides the most specific description shall be preferred to sub-clauses providing a more general description;

(b) composite services consisting of a combination of different services which cannot be classified in the manner specified in clause (a), shall be classified as if they consisted of a service which gives them their essential character, in so far as this criterion is applicable;

(c) when a service cannot be classified in the manner specified in clause (a) or clause (b), it shall be classified under the sub-clause which occurs first among the sub-clauses which equally merit consideration.

Though section 65A came into existence by the Finance Act, 2003 but the same could be applied on pending issues also because of giving statutory guidelines.

[For detail analysis of the above provision an aid may be taken from the article of the author titled – “Central Excise – Tariff Heads” published in the Chartered Accountant Aug 2001 issue.]


5.14. VALUATION

[Prior to the effect of Sec.68 (D) of the Finance Act, 2006 read with the Service Tax (Determination of Value) Rules, 2006 vide Notification No.12/2006 S.T.dt.19/04/2006, the provisions of Sec.67 were as follows: -

Valuation of taxable services for charging Service Tax:–

For the purposes of this Chapter, the value of any taxable service shall be the gross amount charged by the service provider of such service provided or to be provided by him.

Explanation 1 – for the removal of doubts, it is hereby declared that the value of a taxable service, as the case may be, includes: -

(a) the aggregate of commission or brokerage charged by a broker on the sale or purchase of securities including the commission or brokerage paid by the stock broker to any sub-broker;

(b) the adjustments made by the telegraph authority from any deposits made by the subscriber at the time of application for telephone connection or pager or facsimile or telegraphic or telex or for leased circuit;

(c) the amount of premium charged by the insurer from the policy holder;(d) the commission received by the air travel agent from the airline;(e) the commission, fee or any other sum received by an actuary, or

intermediary or insurance intermediary or insurance agent from the insurer;

(f) the reimbursement received by the authorised service station from manufacturer for carrying out any service of any motor car, light motor vehicles or two wheeled motor vehicle manufactured by such manufacturer, and

(g) the commission or any amount received by the rail travel agent from the Railways or the customer,

but does not include, -

(i) initial deposit made by the subscriber at the time of application for telephone connection or pager or facsimile (FAX) or telegraph or telex or for leased circuit;

(ii) the cost of unexposed photography films, unrecorded magnetic tape or such other storage devices if any, sold to the client during the course of providing the service;

(iii) the cost of parts or accessories, or consumables such as lubricants and coolants, if any, sold to the customer during the course of service or repair of motor cars, light motor vehicle or two wheeled motor vehicles;

(iv) the airfare collected by air travel agent in respect of service provided by him;


(v) the rail fare collected by rail travel agent in respect of service provided by him;

(vi) the cost of parts or other material, if any, sold to the customer during the course of providing maintenance or repair service;[xxxxxxxxxxx]

(vii) the cost of parts or other material, if any, sold to the customer during the course of providing erection, commissioning or installation service; and

(viii) Interest on loans

Explanation 2: - where the gross amount charged by a service provider is inclusive of service tax payable, the value of taxable service shall be such amount as with the addition of tax payable, is equal to the gross amount charged;

“Explanation 3: —For the removal of doubts, it is hereby declared that the gross amount charged for the taxable service shall include any amount received towards the taxable service before, during or after provision of such service”.

There was also a provision of deduction in respect of reimbursement of out of pocket expenditure vide CBEC Circular NO.11/03/98 TRU dt. Oct 07, 1998. However, the Circular has been withdrawn by CBEC Circular M.F. (D.R.) Letter F.No.B-1/04/2006 TRU dt. April 19,2006.

The Finance Act, 2006: -

By Sec.68 (D) of the Finance Act, 2006, the provisions of sec.67 of the Finance Act, 1994 have been substituted. Now, the amended provisions are as follows:-

(1) Valuation of the taxable services for charging service tax: - Subject to the provisions of this Chapter, service tax chargeable on any taxable service with reference to its value shall, -

(i) in a case where the provision of service is for a consideration in money, be the gross amount charged by the service provider for such service provided or to be provided by him;

(ii) in a case where the provision of service is for a consideration not wholly or partly consisting of money, be such amount in money, with the addition of service tax charged, is equivalent to the consideration;

(iii) in a case where the provision of service is for a consideration which is not ascertainable, be the amount as may be determined in the prescribed manner.

(2) Where the gross amount charged by a service provider, for the service provided or to be provided is inclusive of service tax payable, the value of such taxable service shall be such amount as, with the addition of tax payable is equal to the gross amount charged.


(3) The gross amount charged for the taxable service shall include any amount received towards the taxable service before, during or after provision of such service.

(4) Subject to the provisions of sub-sections (1), (2) and (3), the value shall be determined in such manner as may be prescribed.

Explanation: — For the purposes of this section:

(a) “consideration” includes any amount that is payable for the taxable services provided or to be provided;

(b) “money” includes any currency, cheque, promissory note, letter of credit, draft, pay order, travellers cheque, money order, postal remittance and other similar instruments but does not include currency that is held for its numismatic value;

(c) “gross amount charged” includes payment by cheque, credit card, deduction from account and any form of payment by issue of credit notes or debit notes and book adjustment.

Analysis: - Vide Notification No.12/2006, the Service Tax (Determination of Value) Rules, 2006 came into existence. Now, the point by point analysis is as follows: -

(A) Gross amount of consideration :- The gross amount charged for the taxable service provided or to be provided shall be the value for calculating service tax. The consideration recovered for providing service is wholly or partly [not in terms of money] than the non monetary consideration shall also be part of the value of taxable service.

(B) Non monetary consideration :-Where the provision of service is for the consideration which is totally non monetary, then the value of similar services provided by the same person shall be the assessable value. However, if the value could not be determined in the above method, then the cost of provision of such service shall be the basis to determine the assessable value.

(C) T he value shall be Ex-Service Tax : - Where the gross amount of consideration is inclusive of service tax payable, the value in such case shall be the amount as, with the addition of tax payable is equal to the gross amount charged i.e.

Cum tax value i.e Cum tax price *100 1+R 100+rate of tax


(D) Time of Recovery has no relevance : - The gross amount charged for the taxable service shall include any amount received towards the taxable service before, during or after provision of such service.

(E) Rejection of Value - Verification of Record : - Rule 4(1) of Service Tax (Determination of Value) Rules, 2006 provides the power in hands of the Central Excise Officers to verify the records and documents to satisfy himself about the accuracy of the value. In case where there is a short valuation in opinion of the Department, a show cause notice shall be issued prior to reassessing the value.

(F) Reimbursement expenditure : - There is no provision to deduct any expenditure or cost while determining the assessable value except the exclusions provided under Rule 5 and 6 of the Valuation Rules, 2006. In other words, with certain exceptions, the entire expenditure or cost recovered from the service receiver shall be the part of the gross consideration to determine assessable value.

(G) Indication of such cost or expenditure on invoice : - To determine whether the expenditure or cost are reimbursed, not only form but also the substance shall be taken into account.

SERVICE TAX (Determination of Value) Rules, 2006): – In exercise of the powers conferred by clause (aa) of sub-section (2) of section 94 of the Finance Act, 1994 (32 of 1994), the Central Government hereby makes the following rules, namely: - 1. Short title and commencement: –(1) These rules may be called the Service Tax (Determination of Value) Rules, 2006.

(2) They shall come into force on the date of their publication in the Official Gazette.

2. Definitions: –In these rules, unless the context otherwise requires, –

(a) “Act” means the Finance Act, 1994 (32 of 1994);(b) “section” means the section of the Act;(c) “value” shall have the meaning assigned to it in section 67;(d) words and expressions used in these rules and not defined but defined

in the Act shall have the meaning respectively assigned to them in the Act.

2A. Determination of value of services involved in the execution of a works contract:

(1) Subject to the provisions of section 67, the value of taxable service in relation to services involved in the execution of a works contract (hereinafter referred to as works contract service), referred to in sub-clause (zzzza) of clause


(105) of section 65 of the Act, shall be determined by the service provider in the following manner:- (i) Value of works contract service determined shall be equivalent to the gross amount charged for the works contract less the value of transfer of property in goods involved in the execution of the said works contract.

Explanation.- For the purposes of this rule,- (a) gross amount charged for the works contract shall not include Value

Added Tax (VAT) or sales tax, as the case may be, paid, if any, on transfer of property in goods involved in the execution of the said works contract;

(b) value of works contract service shall include,-

(i) labour charges for execution of the works;(ii) amount paid to a sub-contractor for labour and services;(iii) charges for planning, designing and architect’s fees;(iv) charges for obtaining on hire or otherwise, machinery and tools

used for the execution of the works contract;(v) cost of consumables such as water, electricity, fuel, used in the

execution of the works contract; (vi) cost of establishment of the contractor relatable to supply of labour

and services; (vii) other similar expenses relatable to supply of labour and services;

and (viii) profit earned by the service provider relatable to supply of labour

and services;

(ii) Where Value Added Tax or sales tax, as the case may be, has been paid on the actual value of transfer of property in goods involved in the execution of the works contract, then such value adopted for the purposes of payment of Value Added Tax or sales tax, as the case may be, shall be taken as the value of transfer of property in goods involved in the execution of the said works contract for determining the value of works contract service under clause (i).

3. Manner of determination of value: – Subject to the provisions of section 67, the value of taxable service, where the consideration received is not wholly or partly consisting of money, shall be determined by the service provider in the following manner:–

(a) the value of such taxable service shall be equivalent to the gross amount charged by the service provider to provide similar service to any other person in the ordinary course of trade and the gross amount charged is the sole consideration;

(b) where the value cannot be determined in accordance with clause (a), the service provider shall determine the equivalent money value of such


consideration which shall, in no case be less than the cost of provision of such taxable service.

4. Rejection of value:– (1) Nothing contained in rule 3 shall be construed as restricting or calling into question the power of the Central Excise Officer to satisfy himself as to the accuracy of any information furnished or document presented for valuation.

(2) Where the Central Excise Officer is satisfied that the value so determined by the service provider is not in accordance with the provisions of the Act or these rules, he shall issue a notice to such service provider to show cause why the value of such taxable service for the purpose of charging service tax should not be fixed at the amount specified in the notice.

(3) The Central Excise Officer shall, after providing reasonable opportunity of being heard, determine the value of such taxable service for the purpose of charging service tax in accordance with the provisions of the Act and these rules. 5. Inclusion in or exclusion from value of certain expenditure or costs: – (1) Where any expenditure or costs are incurred by the service provider in the course of providing taxable service, all such expenditure or costs shall be treated as consideration for the taxable service provided or to be provided and shall be included in the value for the purpose of charging service tax on the said service.

(2) Subject to the provisions of sub-rule (1), the expenditure or costs incurred by the service provider as a pure agent of the recipient of service, shall be excluded from the value of the taxable service if all the following conditions are satisfied, namely: -

(i) the service provider acts as a pure agent of the recipient of service when he makes payment to third party for the goods or services procured;

(ii) the recipient of service receives and uses the goods or services so procured by the service provider in his capacity as pure agent of the recipient of service;

(iii) the recipient of service is liable to make payment to the third party;(iv) the recipient of service authorizes the service provider to make

payment on his behalf;(v) the recipient of service knows that the goods and services for which

payment has been made by the service provider shall be provided by the third party;

(vi) the payment made by the service provider on behalf of the recipient of service has been separately indicated in the invoice issued by the service provider to the recipient of service;

(vii) the service provider recovers from the recipient of service only such amount as has been paid by him to the third party; and


(viii) the goods or services procured by the service provider from the third party as a pure agent of the recipient of service are in addition to the services he provides on his own account.

Explanation1: –For the purposes of sub- rule (2), “pure agent” means a person who–

(a) enters into a contractual agreement with the recipient of service to act as his pure agent to incur expenditure or costs in the course of providing taxable service;

(b) neither intends to hold nor holds any title to the goods or services so procured or provided as pure agent of the recipient of service;

(c) does not use such goods or services so procured; and (d) receives only the actual amount incurred to procure such goods

or services.

Explanation2: – For the removal of doubts it is clarified that the value of the taxable service is the total amount of consideration consisting of all components of the taxable service and it is immaterial that the details of individual components of the total consideration is indicated separately in the invoice.

Illustration 1: – X contracts with Y, a real estate agent to sell his house and thereupon Y gives an advertisement in television. Y billed X including charges for Television advertisement and paid service tax on the total consideration billed. In such a case, consideration for the service provided is what X pays to Y. Y does not act as an agent on behalf of X when obtaining the television advertisement even if the cost of television advertisement is mentioned separately in the invoice issued by X. Advertising service is an input service for the estate agent in order to enable or facilitate him to perform his services as an estate agent Illustration 2:– In the course of providing a taxable service, a service provider incurs costs such as traveling expenses, postage, telephone, etc., and may indicate these items separately on the invoice issued to the recipient of service. In such a case, the service provider is not acting as an agent of the recipient of service but procures such inputs or input service on his own account for providing the taxable service. Such expenses do not become reimbursable expenditure merely because they are indicated separately in the invoice issued by the service provider to the recipient of service. Illustration 3:– A contracts with B, an architect for building a house. During the course of providing the taxable service, B incurs expenses such as telephone charges, air travel tickets, hotel accommodation, etc., to enable him to effectively perform the provision of services to A. In such a case, in whatever form B recovers such expenditure from A, whether as a separately itemised expense or as part of an inclusive overall fee, service tax is payable on the total amount charged by B. Value of the taxable service for charging service tax is what A pays to B.


Illustration 4.– Company X provides a taxable service of rent-a-cab by providing chauffeur-driven cars for overseas visitors. The chauffeur is given a lump sum amount to cover his food and overnight accommodation and any other incidental expenses such as parking fees by the Company X during the tour. At the end of the tour, the chauffeur returns the balance of the amount with a statement of his expenses and the relevant bills. Company X charges these amounts from the recipients of service. The cost incurred by the chauffeur and billed to the recipient of service constitutes part of gross amount charged for the provision of services by the company X. 6. Cases in which the commission, costs, etc., will be included or excluded:– (1) Subject to the provisions of section 67, the value of the taxable services shall include‚–

(i) the commission or brokerage charged by a broker on the sale or purchase of securities including the commission or brokerage paid by the stock-broker to any sub-broker;

(ii) the adjustments made by the telegraph authority from any deposits made by the subscriber at the time of application for telephone connection or pager or facsimile or telegraph or telex or for leased circuit;

(iii) the amount of premium charged by the insurer from the policy holder;(iv) the commission received by the air travel agent from the airline;(v) the commission, fee or any other sum received by an actuary, or

intermediary or insurance intermediary or insurance agent from the insurer;

(vi) the reimbursement received by the authorised service station, from manufacturer for carrying out any service of any motor car, light motor vehicle or two wheeled motor vehicle manufactured by such manufacturer;

(vii) the commission or any amount received by the rail travel agent from the Railways or the customer;

(viii) the remuneration or commission, by whatever name called, paid to such agent by the client engaging such agent for the services provided by a clearing and forwarding agent to a client rendering services of clearing and forwarding operations in any manner; and

(ix) the commission, fee or any other sum, by whatever name called, paid to such agent by the insurer appointing such agent in relation to insurance auxiliary services provided by an insurance agent.

(2) Subject to the provisions contained in sub-rule (1), the value of any taxable service, as the case may be, does not include–

(i) initial deposit made by the subscriber at the time of application for telephone connection or pager or facsimile (FAX) or telegraph or telex or for leased circuit;

(ii) the airfare collected by air travel agent in respect of service provided by him;


(iii) the rail fare collected by air travel agent in respect of service provided by him; and

(iv) interest on loans.

7. Actual consideration to be the value of taxable service provided from outside India:– (1) The value of taxable service received under the provisions of section 66A, shall be such amount as is equal to the actual consideration charged for the services provided or to be provided.

(2) Notwithstanding anything contained in sub-rule (1), the value of taxable services specified in clause (ii) of rule 3 of Taxation of Services (Provided from Outside India and Received in India) Rules, 2006, as are partly performed in India, shall be the total consideration paid by the recipient for such services including the value of service partly performed outside India. [Notification No.12/2006 ST. dtate.19/04/2006]

The Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007

1. Short title and commencement.– (1) These rules may be called the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007. (2) They shall come into force with effect from the 1st day of June, 2007. 2. Definitions.– In these rules, unless the context otherwise requires,-

(a) “Act” means the Finance Act, 1994 (32 of 1994); (b) “section” means the section of the Act; (c) “works contract service” means services provided in relation to the execution of a works contract referred to in sub-clause (zzzza) of clause (105) of section 65 of the Act; (d) words and expressions used in these rules and not defined but defined in the Act shall have the meanings respectively assigned to them in the Act.

3. (1) Notwithstanding anything contained in section 67 of the Act and rule 2A of the Service (Determination of Value) Rules, 2006, the person liable to pay service tax in relation to works contract service shall have the option to discharge his service tax liability on the works contract service provided or to be provided, instead of paying service tax at the rate specified in section 66 of the Act, by paying an amount equivalent to two per cent. of the gross amount charged for the works contract.

Explanation.- For the purposes of this rule, gross amount charged for the works contract shall not include Value Added Tax (VAT) or sales tax, as the case may be, paid on transfer of property in goods involved in the execution of the said works contract. (2) The provider of taxable service shall not take CENVAT credit of duties or cess paid on any inputs, used in or in relation to the said works contract, under the provisions of CENVAT Credit Rules, 2004.


(3) The provider of taxable service who opts to pay service tax under these rules shall exercise such option in respect of a works contract prior to payment of service tax in respect of the said works contract and the option so exercised shall be applicable for the entire works contract and shall not be withdrawn until the completion of the said works contract.

[Notification No.32/2007-ST., dated.22-5/2007]

CBEC Circular: -

CBEC Circular No. M.F. (D.R.) Letter F.No.B1/04/2006 TRU dt.19/04/2006 is as follows:-

SERVICE TAX (Determination of Value) Rules, 2006: –

1. Section 66 enables levy of the service tax @12% of the value if the taxable services referred to in sub-clauses of clauses (105) of the Section 65. In addition, education cess is leviable @2% of 12% i.e., 0.24%. Taxable services received from outside India are charged to service tax under Section 66A.

2. The new Section 67 provides valuation of taxable services for charging service tax. The salient features of the new Section 67 are: -

Where the consideration received for provision of services is wholly in money, the value shall be the gross amount charged by the service provider for provision of service.

Where the consideration received for provision of service is not wholly consisting of money, the value in such cases shall be the gross amount charged by the service provider for provision of similar service to any other person in the ordinary course of trade.

If the value of similar service provided by the same provider is not available, then the value has to be determined.

Money value of non-money consideration received should be determined by the service provider.

If the consideration received is not wholly consisting of money, equivalent money value of the consideration determined by the service provider shall be the taxable value for charging service tax.

If the consideration received is partly in money and partly in non-money terms, the sum of consideration received in money and the equivalent money value of the non-money consideration determined by the service provider shall be the taxable value for charging service tax.


The taxable value shall be determined by the service provider, but the value so determined for the purpose of paying service tax should not be less than the cost of provision of such service.

3. The new Section 67 and the rules issued for this purpose enable charging of service tax in cases where the consideration received is not in money terms. Where the service tax is charged on the basis of similar services provided by the same person, the same should be based on a normal transaction between two independent persons at an arm’s length price.

4. The value determined by the service provider under Rule 3 for the purpose of payment of service tax should not be less than the cost of provision of such services.

5. However, where there are adequate reasons warranting verification of the value adopted by the service provider for payment of service tax, Rule 4(2) specifically enables verification of records in such cases.

6. It is expected that the department should use this provision with extreme care and caution. Such verification should be undertaken only after the written instructions from the Divisional AC/DC. After verification of the records, if the department is of the view that the value so determined and adopted for payment of service tax warrants revision, the issue should be decided after issue of show cause notice and observing the prescribed procedures. Before issuing any show cause notice on matters relating to valuation, concurrence of commissioner should be obtained.

Reimbursable expenditure

7. Value for the purpose of charging service tax is the gross amount received as consideration for provision of service. All expenditures or costs incurred by the service provider in the course of providing a taxable service forms integral part of the taxable value and are includable in the value. It is not relevant that various expenditure or costs are separately indicated in the invoice or bill issued by the service provider to his client.

8. The service provider in the course of providing any taxable service may incur certain expenditure or cost as a pure agent of the client. The service provider seeks to exclude such expenditure or cost incurred by him as a pure agent of his client (generally known as reimbursable expenditure) from the value of the taxable services.

9. There could be situations where the client of the service provider specifically engages the service provider, as his agent, to contract with the third party for supply of any goods or services on his behalf. In those cases such goods or services so procured are treated as supplied to the client rather than to the contracting agent. The service provider in such cases


incurs the expenditure purely on behalf of his client in his capacity as agent of the client. Amount paid to the third party by the service provider as a pure agent of his client can be treated as reimbursable expenditure and not includible in the taxable value. However, if the service provider acts as an undisclosed agent i.e. acting in his own name without disclosing that he is actually acting as an agent of his client, he cannot claim the expenditure incurred by him as reimbursable expenditure. Whether the expenditure or cost incurred by the service provider in his capacity as a pure agent of the client or incurred on his own account is a question of fact and law and is to be determined carefully.

10. Indication of different elements of the transaction in the invoice or bill could often be misleading. One has to carefully examine the exact legal nature of the transactions and other material facts before taking a view as to whether or not the expenditure sought to be excluded from the value is reimbursable expenditure. Not only the form, but also the substance of the transaction should be duly taken into account.

11. Rule 5 pertains to reimbursable expenditure incurred by the service provider as a pure agent of his client. Explanation (1) to Rule 5(2) clearly specifies the criteria to decide whether the service provider acts as a pure agent or not in a given situation. In the case of agency function, the agent neither intends to hold nor holds any title to the goods or services and also never uses such goods or services so produced. It is also important to note that the service provider only receives the actual amount incurred to procure such goods or services.

12. The service provider who seeks to claim exclusion of certain value from the taxable value should also fulfill all the conditions specified in rule 5(2).

13. In the view of the comprehensive provisions of the value of taxable services, all the circulars issued relating to the value of taxable services are withdrawn. If there are any areas where specific clarification on valuation is needed, the same may immediately brought to the notice for consideration.

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See also CBEC Circular No.MF (DR) Letter F. No.B/1/16/2007 TRU dt.22-5-2007 under Part V of the Book.
