Clarificatory Circular Operates Retrospectively And Does Not Bring Anything New: Gauhati High Court

The Gauhati High Court has reiterated that a circular issued by the Central Board of Excise and Customs [CBEC] which only clarifies the CBEC's original instructions and does not bring anything new is clarificatory in nature and operates retrospectively. The Single Bench of Justice Devashis Baruah held that the exceptions enumerated in the clarificatory circular issued by CBEC, that enumerated exceptions with respect to holding pre-show cause notice consultation, would operate retrospectively from the date of issuance of CBEC's original instructions relating to pre-show cause notice consultation. The petitioner/assessee Sanjib Das is in the business of executing work contracts with Public Sector Undertakings. A Demand-cum-Show Cause Notice was issued to the assessee under Section 73 (1) of the Finance Act, 1994, alleging that the assessee had rendered taxable services amounting to a certain value on which the assessee had failed to pay service tax. The Demand-cum-Show Cause Notice also sought to levy interest and penalty on the assessee under the Finance Act, 1994 for non-payment and short payment of service tax. The assessee filed a writ petition before the Gauhati High Court challenging the Demand-cum Show Cause Notice issued by the revenue authorities and also sought a direction that the revenue authorities provide an opportunity of pre-show cause notice consultation to the assessee. The assessee Sanjib Das submitted before the High Court that a Master Circular was issued by the Central Board of Excise and Customs (CBEC), dated 10.03.2017 on the subject of "Show Cause Notices, Adjudication Proceedings and Recovery". The assessee averred that Clause 5 of the said Master Circular provides that prior to issuing show cause notice in cases involving demand of duty above Rs. 50 Lakhs, the Principal Commissioner/Commissioner must mandatorily hold a pre-show cause notice consultation. The assessee contended that the show cause notice issued to it without the pre-show cause consultation was in violation of the Master Circular of CBEC and hence the show cause notice was issued without jurisdiction. The GST department submitted before the Gauhati High Court that after the issuance of the show cause notice, another circular (2nd Circular) was issued by the CBEC, dated 11.11.2021, whereby the said Master Circular was clarified. The GST department averred that the said circular clarified that the exclusion from pre-show cause notice consultation was case-specific and not formation specific. The GST department contended that as per the said circular, a pre-show cause notice consultation was not mandatory for cases booked under the Central Excise Act, 1994 or Chapter V of the Finance Act, 1994 for recovery of duties or taxes that are not levied or paid, or are short levied or short paid, by reason of fraud, collusion, wilful misstatement or suppression of facts. The assessee contended that the said clarification with respect to the Master Circular was issued by the revenue department after the show cause notice was issued against the assessee. The assessee averred that as per the law laid down by the Supreme Court in the case of M/s Suchitra Components Ltd versus Commissioner of Central Excise, Guntur (2007), a beneficial circular has to be applied retrospectively while an oppressive circular should be applied prospectively. The GST department averred that the 2nd Circular issued by the revenue department, being clarificatory in nature, would apply retrospectively from the date of issuance of the Master Circular, and therefore the assessee was not entitled to a pre-show cause notice consultation. The GST department contended that as per the law laid down by the Supreme Court in the case of WPIL Ltd versus Commissioner of Central Excise (2005), a clarificatory notification would come into effect retrospectively as the said notification merely clarifies the position and makes explicit what was implicit. The GST department added that since the 2nd circular was issued to clarify the procedure as provided under the Master Circular, therefore the 2nd Circular could not be said to be either oppressive or beneficial, and thus the law laid down by the Supreme Court in the case of M/s Suchitra Components Ltd. versus Commissioner of Central Excise (2007) was not applicable. The GST department submitted that the Master Circular did not take away the power of the authority to issue show cause notice as the power had been conferred by the statute and thus the issuance of the said show cause notice was not without jurisdiction. The High Court ruled that the concept of pre-show cause notice consultation in Central Excise and Service Tax was introduced as a trade facilitation measure vide the CBEC's instructions dated 21.12.2015. The Court observed that the said principle of pre-show cause notice consultation was reiterated in the...

Clarificatory Circular Operates Retrospectively And Does Not Bring Anything New: Gauhati High Court

Parina Katyal

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