Court Invalidates CBEC Circular Limiting Quasi-Judicial Powers

The court held that Circular No.1022/10/2016-CX issued by the CBEC was ultra vires as it interfered with the discretion of quasi-judicial authorities, thus setting it aside. It was determined that such circulars cannot override the quasi-judicial powers of authorities under the Excise Act. The court allowed the petition, directing the parties back to the appellate jurisdiction for further decisions in accordance with the law, leaving the challenge on the merits of the show cause notice open for the Appellate Authority to decide.

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Issues Involved:
1. Validity of Circular No.1022/10/2016-CX dated 6-4-2016 issued by the Central Board of Excise and Customs (CBEC) under Section 37-B of the Central Excise Act, 1944.
2. Whether the Appellate Authority is bound by the circular and lacks jurisdiction to set it aside.

Issue-wise Detailed Analysis:

1. Validity of Circular No.1022/10/2016-CX:

The petition challenged the order dated 8-3-2018 by the Commissioner, CGST & CX, Nagpur, classifying 36 products of fertilizers marketed as 'Plant Growth Promoters' (PGP) as excisable goods under different tariff items, attracting excise duty at rates between 12.36% to 12.50%. The petitioners argued that these products, containing Nitrogen, Phosphorus, or Potassium, should be classified as 'other fertilizers' under Chapter Heading 3105, attracting a duty of 1%.

The key contention was whether the circular dated 6-4-2016 issued by CBEC, which provided guidelines for classifying micronutrients and fertilizers, extended beyond the scope of Section 37-B of the Central Excise Act, 1944. The circular interpreted 'essential constituent' in Note 6 under Chapter Heading 3105 to mean 'essential character,' which the petitioners argued was not permissible. The court agreed, stating that the interpretation of statutory terms is the function of the judiciary, not the executive. The circular was deemed to interfere with the discretion of quasi-judicial authorities and was thus ultra vires and set aside.

2. Binding Nature of the Circular on the Appellate Authority:

The court examined whether the Appellate Authority is bound by the circular and lacks jurisdiction to set it aside. It referred to several precedents, including the Punjab & Haryana High Court's decision in Vardhman Polytex Limited v. Union of India and the Madras High Court's decision in Madura Coats Ltd. v. C.B.E. & C., which held that circulars issued under Section 37-B cannot override the quasi-judicial powers of authorities under the Excise Act. The court concluded that the issuance of such circulars binds departmental authorities but cannot foreclose the discretion of quasi-judicial authorities. The competency to issue such circulars or their ultra vires nature cannot be adjudicated by tribunals under the Act; such matters must be challenged via writ petitions under Article 226 of the Constitution of India.

Judgment:

The court allowed the petition, quashing Circular No.1022/10/2016-CX dated 6-4-2016 for being ultra vires. The parties were directed back to the appellate jurisdiction for the decision of remaining questions in accordance with the law. The challenge on merits of the show cause notice was left open to be decided by the Appellate Authority. The rule was made absolute with no order as to costs.

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