Transcript AVOIDANCE OF INFRACTOUS SCN AND EVIDENCE PRIOR TO ISSUE OF SCN

D N PANDA
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“It is impossible even for the most imaginative
Legislature to forestall exhaustively situations and
circumstances that may be called for. The intention of
the legislature assimilates two aspects viz. Concept of
‘meaning’ and concept of ‘purpose and object’ of the
statute. Process of construction combines both literal
and purposive approaches.”
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 “In a taxing Act one has to look merely at what is
clearly said.
There is no room for any
intendment. There is no equity about a tax. There
is no presumption as to tax. Nothing is to be read
in, nothing is to be implied.”
(Rowlatt, J.)
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 The words of a statute are first understood in
their natural, ordinary or popular sense and
phrases and sentences are construed according to
their grammatical meaning, unless tht leads to
some absurdity or unless there is something in
the context, or in the object of the statute to
suggest the contrary.
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 Legal fictions are limited to the purpose for which they
are created and should be taken to their logical end in
applications of the fiction to the facts the Court has to
consider.
Chidambaram Mulraj & Co. Pvt. Ltd.
Vs
CIT 58 ITR 206(Bom)
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 A fiscal statute is to be interpreted on the basis of the
language used their and not de hors the same. No
words ought to be added and only the language used
ought to be considered so as to ascertain the proper
meaning and intent of the legislation.
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 The Court is to ascribe natural and ordinary meaning
to the words used by the legislature and the court
ought not, under any circumstances, to substitute its
own impression and ideas in place of the legislative
intent as is available from a plain reading of the
statutory provisions.
Orissa State warehousing Corpn.
Vs CIT
(SC) 237 ITR 589
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 The provisions in a taxing statute dealing with
machinery for assessment have to be construed by the
ordinary rules of construction, that is to say, in
accordance with the clear intention of the legislature,
which is to make a levy of charge effective.
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TAXES ARE SOURCE
TO FUND
PUBLIC WELFARE
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Maintaining transparency
by Tax Administration
ensures fair play
Tax Administration is not exception
To follow course of Natural Justice
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IMPORTANCE OF FAIRNESS
 Fair procedure and the principles of natural justice are
in built into the law.
 A noticee is always entitled to satisfy the Adjudicating
Authority that those very documents upon which
reliance has been placed do not make out even a prima
facie case requiring any further inquiry.
 In such view of the matter, all such documents relied
on by the Authority are required to be furnished to the
noticee enabling him to show a proper cause as to why
an adjudication shall not be against him
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GOLDEN RULE OF TAX
ADMINISTRATION
 Golden rule of law is that quasi judicial decision making
process should be transparent .
 The independence of Tax Administration should remain
unimpaired as well as judicial decision uninfluenced.
 Fair play and transparency are sine qua non in judicial
decision making process
 If the functioning of a quasi-judicial authority has to
inspire confidence in the minds of those subjected to its
jurisdiction, such authority must act with utmost fairness.
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Transparency is necessity of
Administrative Justice Delivery
 Transparency in decision making not only makes the
judges and decision makers less prone to errors but
also makes them subject to broader scrutiny
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Delivery of Administrative Justice
by Taxing Authorities must not
only be apparent but also
visible from conduct
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Tax Administration is not exception
To follow course of Natural Justice
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BASIC PRINCIPLES OF JUSTICE
 Judicial proceedings always require:
 (i) no man shall be a judge in his own cause and
 (ii) justice should not only be done but manifestly and
undoubtedly seem to be done.
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Right to Defence
 The right to defence and fair hearing is a guaranteed
right.
 If relevant material is not disclosed to a party, there is
prima facie unfairness irrespective of whether the
material in question arose before, during or after the
hearing.
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Revenue Administration
Should be free from
interference
 Law regulates exercise of judicial powers but does not
interfere to the independence in decision making in
any manner.
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Stating of Reasons of
Decision is sine qua non
 The hallmark of order and exercise of judicial power by
a judicial forum is for the forum to disclose its reasons
by itself
 And giving of reasons has always been insisted upon
as one of the fundamentals of sound administration of
the justice – delivery system, to make it known that
there had been proper and due application of mind to
the issue before the Court and also as an essential
requisite of the principles of natural justice.
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Reasoned & Speaking
 The
absence of reasons renders an order
indefensible/unsustainable particularly when the
order is subject to further challenge before a higher
forum.
 Recording of reasons is principle of natural justice and
every judicial order must be supported by reasons
recorded in writing.
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Bias and extraneous
considerations
as well as prejudging issues by
empty
ceremony are sworn enemies of
Administration of Justice
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LACK OF JURISDICTION
MAKES A PROCEEDING FATAL
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LACK OF JURISDICTION
 If an authority which has jurisdiction in regard to one
aspect takes upon itself to make enquiry into a matter
in respect of which it had no jurisdiction then merely
because in regard to one aspect it has jurisdiction, the
Court cannot ignore the fact of lack of jurisdiction and
allow the Tribunal to proceed with the matter in
respect of which it has no jurisdiction to make inquiry
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FATAL FLAW
 If the show cause notice is totally vague and does not
disclose any material against allegation therein for the
proposed action then such a show cause notice cannot
be said to be validly issued
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SCN-A FOUNDATION
 Show cause notice is the basic document to grant
opportunity to a noticee to meet allegations.
 It is foundation in the matter of levy and recovery of
duty, penalty and interest on which the Department
has to build up its case.
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WHAT IS APPARENT
MAY NOT BE REAL
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IMPORTANCE OF INTENTION
 Intention plays an important role in matters in which
there is an allegation of duty evasion.
 If any device is evolved by assessee to show that a
transaction which is apparent is not real causing
subterfuge to Revenue an in depth enquiry into the
transaction from origin to termination cannot be
avoided.
 All documents relied upon should be provided to
noticee under proper acknowledgement and in case of
non-receipt thereof should be immediately addressed
without delay to result in proper adjudication.
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DUTY OF ADEQUATE DISCLOSURE
 A reasonable opportunity of being heard is to be
provided by the authority at the SCN stage and in the
manner prescribed for the purpose of adjudication as
provided for in the Act and not at the stage
Adjudication.
 Requirement of providing a reasonable opportunity of
defence should commence from SCN stage. The
minimum requirement of a SCN and consideration of
cause shown would meet the ends of justice.
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DUTY OF DISCLOSURE
 Express mention of allegation in the SCN notices or at
least whisper therein as to short-levy or no-levy or any
erroneous refund by reason of collusion or any wilful
mis-statement or suppression of facts by the noticee
shall not make the proceeding fatal nor invoke the
larger period void.
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EXTENDED PERIOD-CONDITIONS
PRECEDENT FOR INVOKATION
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EXTENDED PERIODPRECONDITIONS
 SCN invoking extended period can only be issued only
upon the basis that the assessee was guilty of fraud or
of collusion or of willful mis-statement or suppression
of facts or of contravention of the provisions of the Act
or the Rules with intent to evade payment of tax/duty.
 That should not suffer to set out any particulars in
respect of fraud or collusion or willful mis-statement
or suppression of facts or contravention with intention
to evade the payment of tax/duty.
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 Which ground is alleged against the assessee, that must be
made known to him, and there is no scope for assuming
that the ground is implicit in the issuance of the show
cause notice
 In order to attract the proviso it must be shown that the tax
escaped payment by reason of fraud, collusion or willful
mis-statement or suppression of fact or contravention of
any provision of the Act or of the Rules made there under
with intent to evade payment of duty.
 In that case the period of one year would stand extended to
5 years as provided by the said proviso
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INTENTION
 The evidence that surfaces in
the course of
investigation and statements recorded play a vital role
for an effective proceeding.
 Details in the reply to SCN needs through scrutiny to
avoid subsequent plea of violation of natural justice.
 Mere suspicion not being substitute of evidence,
endeavour should be act on cogent evidence.
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FRAUD-DEFINITION
 Any conduct involving deceit resulting in injury, los or
damage to some one is fraud.
 Any wilful attempt to defeat the provisions of a statute
or illegally evade one’s liability to pay taxes/duties will
be evasion of such taxes/duties which would amount
to fraud
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FRAUD
 The shape of each fraud depends upon the fertile
imagination and cleverness of who conceives and
perpetrates the fraud.
 Any conduct involving deceit resulting in injury, los or
damage to some one is fraud.
 Any wilful attempt to defeat the provisions of a statute
or illegally evade one’s liability to pay taxes/duties will
be evasion of such taxes/duties which would amount
to fraud
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FRAUD UNRAVELS EVERYTHING
 If a fraud is detected by the Court of law, it can pierce
the corporate structure since fraud unravels every
thing, even a statutory provision, if it is a stumbling
block because the Legislature never intents to guard
fraud.
 Lifting the corporate veil doctrine is readily applied
once the transaction is shown to be fraudulent, sham,
circuitous or a device designed to defeat the interests
of Revenue.
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TAXEVASION-A MENACE
 Law does not grant premium to illegal and criminal
activities.
 It is a basic common sense that no person will
maintain authentic records of the illegal activities
being done by him.
 Material facts, evidence and surrounding
circumstances only bring such activities for scrutiny of
law and the wrong doer has burden of proof to come
out with clean hands to prove that he is innocent.
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LIFTING THE CORPORATE VEIL
 In certain exceptional case Court is entitled to lift the
veil of corporate entity and to pay regard to the
economic realities behind legal façade. Court may
disregard the corporate entity if it is used to for tax
evasion or to circumvent tax obligation
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TAX AVOIDANCE V. TAX EVASION
 To create the atmosphere of tax compliance taxes must
be reasonably collected and when collected, should be
utilized in proper expenditure and not wasted
 It is wrong to encourage or entertain the belief that it
is honourable to avoid the payment of tax by dubious
methods
 Court sometimes takes stock to determine the nature
of the new and sophisticated legal devices to avoid tax
and to expose the devices for what they really are and
to refuse to give judicial benediction
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FALSE ENTRIES IN BOOKS
 Wilful and intentional recording of facts in statutory
records, books of account or other document relevant
to or useful in any proceedings, knowingly that to be
false or not believable to be true, that results in
evasion of tax/duty. The books of accounts and
documents considered as relevant and useful evidence
for any tax proceeding if containing false entries or
statements known to the perpetrator thereof becomes
is to foil collection of Revenue which should meet
penal consequence of law.

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 Ill intention of the perpetrator with or without collusion
needs serious scrutiny pondering live link and nexus
between the evasion plotted and the ill will of doer or
abettor. Intention of the designer of the fraud needs to be
probed to find direct evidence and probabilities. Guilt of
perpetrator and abettor depends of the nature of the
infraction of law committed.

Active assistance of the falsifier of documents, papers
and records needs to thorough investigation. Such
assistance may be in the form of advices or
communications
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 Wilful and intentional recording of facts in statutory
records, books of account or other document relevant
to or useful in any proceedings, knowingly that to be
false or not believable to be true, that results in
evasion of tax/duty. The books of accounts and
documents considered as relevant and useful evidence
for any tax proceeding if containing false entries or
statements known to the perpetrator thereof becomes
is to foil collection of Revenue which should meet
penal consequence of law.
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 Deliberate non compliance to law, wilful avoidance to
submit information to Revenue, failure to seek
registration and file returns under law, filing of false
returns, creation of fictitious concerns to take undue
advantage of fiscal incentives, circumvention of law by
dubious practices and unauthorised claim of
notification benefits under law, mis-declarations,
suppressions, falsification of books of account or other
documents wilfully some of the modus operandi of
causing loss to Revenue by evaders.
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EXEMPTION NOTIFICATIONS
 Unless otherwise established, the courts presume that
action of the Central Government to be necessary for
giving effect to its policy (underlying the notification)
on the basis of the working of the said notification was
necessary to prevent persons from taking unfair
advantage of the concession.
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PRINCIPLES OF INTERPRETATION
 “A provision especially a fiscal statute providing for an
exemption, concession or exception has to be
construed strictly.
 An exemption notification has to be interpreted in the
light of the words employed by it and not on any other
basis.
 A person who claims exemption or concession must
establish clearly that he is covered by the provision(s)
concerned and, in case of doubt or ambiguity, the
benefit of it must go to the State.”
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PRINCIPLES OF INTERPRETATION
 A notification requires to be interpreted in the light of the
words employed by it and not on any other basis. There
cannot be any addition or subtraction from the notification
for the reason the exemption notification requires to be
strictly construed by the Courts.
 An exemption notification has to be construed strictly but
that does not mean that the object and purpose of the
notification is to be lost sight of and the wording used
therein ignored. Where the wording of the notification is
clear and unambiguous, it has to be given effect to.
Exemption cannot be denied by giving a construction not
justified by the wording of the notification.”
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PRINCIPLES OF INTERPRETATION
 It is settled law that exemption notifications have to be
strictly construed. They must be interpreted on their
own wording. Wordings of some other notification are
of no benefit in construing a particular notification.”
 When the wordings of the notifications are clear and
unambiguous they must be given effect to. By a
strained reasoning benefit cannot be given when it is
clearly not available.”
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PRINCIPLES OF INTERPRETATION
 The notification has to be construed in terms of the
language used therein. It is well settled that unless
literal meaning given to a document leads to anomaly
or absurdity, the golden rule of literal interpretation
shall be adhered to.”
 It is settled law that in order to claim benefit of a
notification, a party must strictly comply with the
terms of the notification. If on wording of the
notification the benefit is not available then by
stretching the words of the notification or by adding
words to the notification benefit cannot be conferred.
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PRINCIPLES OF INTERPRETATION
 The terminologies used in the notification would have an
important role to play. Where the exemption notification
ex facie applies, there is no reason as to why the purport
thereof would be limited by giving a strict construction
thereto.
 The object for grant of notification shall be considered in a
broad based manner. The wordings used therein have to be
given their natural meaning. The purpose must be allowed
to be achieved.
 The rule regarding exemptions is that exemptions should
generally be strictly interpreted but beneficial exemptions
having their purpose as encouragement or promotion of
certain activities should be liberally interpreted.
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PRINCIPLES OF INTERPRETATION
 Provision granting incentive for promoting economic
growth and development in taxing statutes should be
liberally construed and restriction placed on it by way
of exception should be construed in a reasonable and
purposive manner so as to advance the objective of the
provision.”
 No violence is done to the language employed.
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 “A lawyer without history or literature is a mere
mechanic a mere working mansion.
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 The sparks of al the sciences in the world are taken up
in the ashes of the law.
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 “Belief only one-half that a client tells you. Let him
produce proof of the other half. His Zeal and self
interest will deceive hm. Don’t let it deceive you
before hard. See the witnesses before you plan your
cases. It will help you to know that what the proof is
like” (Judge Donovan).
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 He must not merely look to principles, but must have
them in readiness to act upon them: not as if they had
been taught him, but as if they had been born in him.
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JUSTICE FOR ALL
“Sword of law Should never fall
but on those whose guilt is so
apparent and is appreciated by
their friendS and foeS”
Justice Krishna Iyer
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FINAL WORD
“The Arc of the Moral Universe Is Long, but It Bends
Toward Justice”
― Martin Luther King Junior
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