THE PRINCIPLE OF NATURAL JUSTICE

Power of Adjudication — Section 83A          

The Finance Act, 2005 had inserted a new Section 83A which relates to Power of Adjudication. According to Section 83A, where under this Chapter or the Rules made thereunder, any person is liable to a penalty, such penalty may be adjudged by the Central Excise Officer conferred with such power as the Central Board of Excise and Customs constituted under the Central Board of Revenue Act, 1963, may, by notification in the Official Gazette, specify.

When show cause notices are issued under provisions of the Finance Act, 1994 charging any person for contravention of any provisions of the said Act and rules and/or notifications issued thereunder and penal action is proposed the competent officers of the Department adjudge the case and issue orders. This process is called adjudication.

Often notices are issued under section 73 of the Finance Act, 1994 for determination of tax, and the matter is decided by a competent officer. This is also referred to adjudication in common parlance. A notice to show cause under the provisions of the said Act or the rules made thereunder shall be approved in writing and signed by the Central Excise officer who is competent to adjudicate the said notice.

Adjudication under Central Excise

Section 33A of Central Excise Act, 1944 also prescribes for adjudication procedure. Accordingly, the adjudicating authority shall give an opportunity of being heard to a party in a proceeding, if the party so desires. Not only this, time may also be granted at any stage of proceeding to the parties and adjourn the hearing for reason to be recorded in writing.

Natural Justice

The principle of natural justice forms the root of judicial process. The basic rule is that no person should be condemned or held guilty unheard or an opportunity should be given for being heard.

Rules of natural justice are not embodied rules. The expression nature justice is also not capable of a precise definition. The underlying principle of nautral justice, evolved under the common law is to check arbitrary exercise of power by the state or its functionaries. Therefore, the principle implies a duty to act fairly, i.e, fair play in action. The aim of rules of natural justice is to secure justice or, to put it negatively, to prevent miscarriage of justice. These rules can operate only in areas not covered by any law validly made. They do not supplant the law but supplement it. [as held in Sahar India (Firm) v. CIT 2008 -TMI - 3592 - Supreme Court].

In Ashwani & Associates v. Commissioner of Central Excise, 2005 -TMI - 23 - CEGAT, NEW DELHI, it was observed that it is mandatory on the part of revenue to follow the principles of natural justice i.e., audi altarem partem rule meaning that other party should be heard, before imposing any penalty and provide an opportunity to assessee to prove that there was a reasonable cause. (Also see CCE, Calcutta — I, v. Suraj Ratan Mohta 2005 -TMI - 20 - CEGAT, CALCUTTA. In Anchor Shipping Agencies v. CCE Mumbai — I, 2005 -TMI - 24 - CEGAT, MUMBAI, penalty under Section 77 was reduced when subsequently law was amended to reduce the penalty, taking cognizance of subsequent reduction in penalty.

Natural justice implies that even assessee or taxpayer or aggrieved party or notice is given a fair chance of being heard and present his case or defense. Being heard implies that the party could either give oral defense or submit written arguments and submissions which must be considered by the adjudicating authority. Thus, the party can legally contest and defend the allegations before the final order. Giving a fair and reasonable opportunity leads to fair and transparent adjudication. The principle of natural justice ensures fairness in the process of adjudication.

In taxation, natural justice would imply any one or more or all of the following -

(a) Service of notice before adjudication takes place, i.e, intimation.

(b) Supply of documents relied upon should be given to noticee so that he can know what are the relied upon documents (RUDs) based on which allegations have been made so that he can argue accordingly.

(c) Right of inspection of documents which are in the possession of department.

(d) Right to obtain copies of records and documents which are not in his possession but form the basis for allegations. It was held by apex court in Kothari Filaments Vs. CC (Port) Kolkata 2008 -TMI - 31872 - SUPREME COURT and Sanghi Textile Processors v Union of India 2008 -TMI - 43503 - SUPREME COURT OF INDIA that assessee is entitled to copy of documents and that he can inspect the records on completion of investigation.

(e) All documents which are not relied upon documents ought to be returned back to the assessee as those are his property.

(f) Right of cross examination should be given in all reasonable cases calling for such examination.

Natural Justice & Reasoned Order

In Asstt. Commissioner, Commercial Taxes Department Vs. Shukla Brothers 2010 -TMI - 76374 - SUPREME COURT OF INDIA, it has been held that principle of natural justice has twin ingredients, the person likely to be adversely affected by action of authorities should be given notice to show cause and should be granted an opportunity of hearing. The orders passed by authorities should give reasons for arriving at conclusion showing proper application of mind. The violation of either of them vitiates the order itself. The order should be supported by reasons of rationality.

A reasoned order by the adjudicating authority is the outcome of observance of principles of natural justice. The orders passed without assigning any valid reasons and without discussion are thus non- speaking orders.

In Premier Plastics Vs. CCE, Kanpur 2009 -TMI - 77341 - (CESTAT, NEW DELHI), it was held that it was necessary to records reason for taking a particular view and also, it is necessary for the aggrieved party to know the grounds as to why the order has been passed. Failure on the part of the authority to record reasons would result in injustice to the aggrieved party.