2022 (2) TMI 959 - HC - Service Tax

Dismissal of Writ Petition Over Show Cause Notice Without Pre-Consultation

The High Court dismissed the writ petition challenging a show cause notice issued to multiple individuals without pre-consultation as required by CBEC ... Pre-consultation under CBEC Master Circular - binding nature of administrative circulars - jurisdiction to issue show cause notice under Section 73 of the Finance Act, 1994 - competent authority to initiate show cause proceedingsPre-consultation under CBEC Master Circular - binding nature of administrative circulars - Validity of the show cause notice challenged on the ground that pre-consultation required by the CBEC Master Circular was not carried out. - HELD THAT: - The Court held that the Master Circular relied upon by the petitioner does not oust the statutory power to issue show cause notices. The circular is intended to facilitate settlement and pre-consultation where large amounts are involved, but its non-compliance does not render show cause proceedings illegal or without jurisdiction. Circulars are not binding on the Court, and the authority to initiate proceedings under the statute cannot be defeated merely by non-adherence to an administrative circular; the Court relied on the principle that administrative circulars do not bind courts. [Paras 8, 9]The challenge to the notice on the ground of non-compliance with the Master Circular is rejected.Jurisdiction to issue show cause notice under Section 73 of the Finance Act, 1994 - competent authority to initiate show cause proceedings - Whether the impugned show cause notice was issued by a competent authority and whether the proceedings were maintainable. - HELD THAT: - The Court observed that the impugned show cause notice was issued by the Commissioner, Office of the Commissioner of GST and Central Excise, Chennai Outer Commissionerate, and that the notice was issued under the statutory scheme (Section 73, Finance Act, 1994). Having found the notice to have been issued by a competent authority, the Court declined to interfere with the show cause proceedings and directed the noticees to file separate replies to meet the allegations on merits. [Paras 9, 10, 11]The show cause proceedings are maintainable; the noticees are directed to file separate replies and the writ petition is dismissed.Final Conclusion: Writ petition dismissed; impugned show cause notice sustained as issued by a competent authority and not rendered illegal by non-compliance with the CBEC Master Circular; noticees directed to file separate replies; no order as to costs. Issues:Challenge to show cause notice based on lack of pre-consultation as per CBEC Water Circular Dated 10.03.2017.Analysis:The petitioner challenged the show cause notice dated 23.10.2019 on the basis that it was issued to multiple individuals due to common directors and partners without pre-consultation as required by CBEC Water Circular. The petitioner argued that the notice contradicted CBEC Master Circular No.1053/2/2017-CX, which mandates pre-consultation for amounts exceeding 50 lakhs. The petitioner cited previous court decisions such as TUBE INVESTMENT OF INDIA LTD. Vs. UNION OF INDIA and HITACHI POWER EUROPE GMBH Vs. C.B.I. & C, supporting the requirement of pre-consultation. Additionally, reference was made to the decision of the Delhi High Court in AMADEUS INDIA PVT.LTD. Vs. PR.COMMR.OF C.EX., S.T. & CENTRAL TAX and BACK OFFICE IT SOLUTIONS PVT. LTD Vs. UNION OF INDIA & ORS., further strengthening the argument to quash the impugned notice.The High Court considered the arguments presented and noted that the impugned show cause notice was issued to all co-noticees based on a combined demand for service tax. The Court highlighted that the circulars referred to by the petitioner were not binding on the Court and were not envisaged under the Finance Act, 1994. The Court emphasized that the purpose of the Master Circular was to encourage parties to pay outstanding amounts to avoid lengthy proceedings, but this did not render the show cause proceedings illegal or without jurisdiction. Citing the decision of the Supreme Court in COMMISSIONER OF CENTRAL EXCISE Vs. RATTAN MELTING AND WIRE INDUSTRIES, the Court affirmed that circulars are not binding on the Courts. The Court concluded that the impugned show cause notice was issued by a competent authority under the Finance Act, 1994, and directed the noticees to respond to the allegations on merit.In light of the above analysis, the Court declined to interfere with the show cause proceedings and dismissed the writ petition, instructing the noticees to file their individual replies to the show cause notices. The Court ruled that there would be no order as to costs in this matter.