2019 (5) TMI 669 - HC - Service Tax

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 ... Pre-show cause notice consultation - Exception for preventive or offence-related show cause notices - Binding nature of CBEC instructions under Section 37B of the Central Excise Act, 1944 - Duty to record contemporaneous decision not to follow mandatory administrative instruction - Remedial consequence of non-compliance with mandatory consultation (setting aside and relegation to pre-SCN stage)Pre-show cause notice consultation - Exception for preventive or offence-related show cause notices - Whether the adjudicating authority was required to conduct a pre-SCN consultation under para 5.0 of the CBEC Master Circular prior to issuing the impugned SCN, and whether the exceptions for preventive or offence-related SCNs applied. - HELD THAT: - Para 5.0 of the Master Circular makes pre-SCN consultation by the Principal Commissioner/Commissioner mandatory in cases involving demands of duty above the threshold, subject only to two exceptions - preventive action or SCNs relating to offences. The Court held that the mere fact that a search had been conducted and that adjudication might ultimately lead to findings of offence does not automatically convert every SCN into an 'offence-related' SCN and thereby attract the exception. To treat the exception as coextensive with any case that may culminate in penal consequences would nullify the consultation mandate. In the present matter the impugned SCN related to alleged non-payment of service tax for the period 2012-2013 to 2016-2017; no preventive aspect was involved and the Respondent did not demonstrate that the SCN, at the time of issuance, fell within the offence-related exception. Consequently the mandatory consultation under para 5.0 was required before issuance of the SCN. [Paras 12, 13, 14, 18]Pre-SCN consultation under para 5.0 was required and the exceptions were not attracted in this case.Binding nature of CBEC instructions under Section 37B of the Central Excise Act, 1944 - Duty to record contemporaneous decision not to follow mandatory administrative instruction - Remedial consequence of non-compliance with mandatory consultation (setting aside and relegation to pre-SCN stage) - Whether the Respondent complied with the Master Circular or recorded any conscious decision not to undertake pre-SCN consultation, and the consequence of non-compliance. - HELD THAT: - Section 83 of the Finance Act makes Section 37B of the Central Excise Act applicable to service tax, thereby rendering CBEC instructions binding on departmental officers. The Court found no contemporaneous noting or decision on file by the Respondent declining to undertake the pre-SCN consultation mandated by the Master Circular. The absence of any recorded exercise of discretion under the Circular evidenced non-compliance. In light of settled law and consistent authority endorsing enforcement of such administrative instructions, the appropriate remedy is to set aside the impugned SCN and remit the matter to the stage prior to issuance of the SCN so that the mandatory consultation may be carried out in accordance with the Master Circular. [Paras 15, 16, 19, 20]SCN set aside for failure to comply with the mandatory consultation; matter relegated to pre-SCN stage for consultation and further procedural action.Final Conclusion: The impugned show cause notice dated 4th September 2018 is set aside for failure to undertake the mandatory pre-SCN consultation under para 5.0 of the CBEC Master Circular; the parties are relegated to the stage prior to issuance of the SCN and the respondent shall conduct the required consultation in accordance with the Master Circular. 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.