Pre-SCN consultation under para 5.0 CBEC Master Circular mandatory via s.83 Finance Act, s.37B Central Excise

HC held that para 5.0 of the CBEC Master Circular dated 10 March 2017 mandates pre-SCN consultation, and that such instructions are binding on departmental officers by virtue of s.83 of the Finance Act, 1994 read with s.37B of the Central Excise Act, 1944. As the Respondent issued the SCN dated 4 September 2018 without any conscious decision to dispense with consultation and without considering applicable exceptions, the SCN was set aside. Parties were relegated to the stage prior to issuance of the SCN. The petition was allowed.

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Issues:
1. Whether pre-notice consultation was required before issuing the show cause noticeRs.
2. Compliance with the Master Circular dated 10th March, 2017 by the Respondent.

Issue 1: Pre-notice consultation requirement:
The writ petition questioned the necessity of a pre-notice consultation by the Respondent with the Petitioner before issuing the impugned show cause notice (SCN) dated 4th September 2018. The Petitioner argued that as per the 'Master Circular' issued by the Central Board of Excise and Customs (CBEC), a pre-notice consultation was mandatory in cases involving demands of duty above Rs. 50 lakhs. The Respondent contended that the SCN was related to an offence and hence fell under the exceptions specified in the Master Circular.

The Court analyzed the purpose of the Master Circular, emphasizing the need to narrow down disputes through consultation to facilitate a resolution. It noted that the exceptions for preventive or offence-related SCNs should not be applied liberally to render pre-notice consultation redundant. The Respondent's failure to engage in pre-notice consultation as mandated by the Master Circular was highlighted, indicating a disregard for the Circular's provisions.

Issue 2: Compliance with the Master Circular:
The Court delved into the legal framework underpinning the Master Circular, citing Section 83 of the Finance Act, 1994, which binds officers to follow CBEC instructions. It referenced precedents like the State of Tamil Nadu v. India Cements Ltd. (2011) and a judgment by the High Court of Judicature at Madras, emphasizing the binding nature of the Master Circular's provisions.

The Court ultimately concluded that the Respondent's failure to conduct pre-notice consultation in accordance with the Master Circular warranted setting aside the impugned SCN. It directed the parties to engage in the pre-SCN stage, ensuring the Petitioner's representation and cooperation in addressing the issues raised in the communication preceding the SCN.

In the absence of a decision on the merits of the case, the Court allowed the petition, disposing of the application without costs. The judgment underscored the importance of adherence to procedural requirements such as pre-notice consultation as outlined in the Master Circular to promote a collaborative approach in resolving tax disputes.

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