Given the poor experience people have with the taxman—the vice-president (finance) of MakeMyTrip was arrested for alleged service tax violation without even a show-cause notice in January last year—the Central Board of Excise and Customs (CBEC) has done well to issue a list of standard operating procedures (SOPs) for show-cause notice, adjudication and recovery that are more taxpayer-friendly; the circulars have been issued to all principal/chief commissioners of customs, excise and service tax. By simplifying the procedures and weeding out unnecessary circulars, the board has opened the possibilities for cutting down fresh cases at the departmental level—items like petroleum products and tobacco will remain in the excise net in the GST regime—and also deal with the cases at the judicial levels that come up because of the challenges to the adjudication orders by providing both trade and field formations the necessary clarity and uniformity. A whole set of SOPs to deal with arbitration is important because, as the latest CAG report on indirect taxes points out, “cases involving duty of R29,355 crore were pending as on 31 March 2016 for adjudication”; at the department appellate level and also the high courts and Supreme Court, cases involving R1,88,986 crore were pending in appeals by the end of FY16, out of which R92,162 crore were that of excise duty. The success ratio of department’s appeal against the adjudication orders has gone down from 33% in FY14 to 27% in FY16 at various forums—it fell from 34% to 18% in the high courts and from 19% to 11% in SC. The CBEC master circular on show-cause notices, adjudication proceedings and recovery is a compilation of relevant legal and statutory provisions which has been done by keeping the necessary norms and cutting out the confusion and clutter.
The new master circular makes it mandatory to not just issue a show-cause notice (SCN) which has details of the investigation carried out and to clearly spell out the charges, but to also have a pre-consultation with the accused before the notice is sent out—as the circular puts it, “this is an important step towards trade facilitation and promoting voluntary compliance and to reduce the necessity of issuing show cause notice”. After issuing a SCN, the adjudicating authority is to give at least three opportunities for a personal hearing and these have to be well spread out to ensure there is enough opportunity to be heard. Given the frequency with which, both for direct and indirect taxes, long-standing practices of assessment are suddenly changed by issuing a tax demand, the master circular is clear that the law should not “be suddenly changed by issuing show cause notice demanding duty”. In such a case, the “issues should be referred to the Board … with inputs received from other zones regarding the proposed change in the practice of assessment”. Now that CBEC has made such clarifications, the direct tax department also needs to follow suit.