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

The Single Bench of Justice Devashis Baruah held that the exceptions enumerated in the clarificatory circular issued by CBIC, that enumerated exceptions with respect to holding pre-show cause notice consultation, would operate retrospectively from the date of issuance of CBIC'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 Indirect Taxes and Customs (CBIC), 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 CBIC 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 (2^nd Circular) was issued by the CBIC, 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 2^nd 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 2^nd circular was issued to clarify the procedure as provided under the Master Circular, therefore the 2^nd 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 CBIC's instructions dated 21.12.2015. The Court observed that the said principle of pre-show cause notice consultation was reiterated in the said Master Circular issued by the CBIC. The High Court noted that subsequently, a reference was received by the Directorate General of GST Intelligence (DGGI), in which it was clarified that the exclusion from pre-show cause notice consultation was case-specific and not formation specific.

The High Court held that the 2^nd circular issued by the CBIC merely clarified the CBIC's instructions relating to pre-show cause notice consultation which were reiterated in the Master Circular. The Court added that the said 2^nd circular was clarificatory in nature and did not bring anything new, and thus in view of the judgment of the Supreme Court in the case of WPIL Ltd versus Commissioner of Central Excise (2005) the 2^nd Circular/clarificatory circular would operate retrospectively from the date of the CBIC's instructions dated 21.12.2015 read with the Master Circular.

The High Court ruled that as per the stand of the revenue authorities in the show cause notice issued to the assessee, the assessee had suppressed material facts and thus the exceptions enumerated in the 2^nd Circular/clarificatory circular were attracted and it was not mandatory for the revenue authorities to have a pre-show cause notice consultation.

The High Court added that the power exercised by the revenue authority of issuing the said show cause notice to the assessee is a statutory power conferred under Section 73 of the Finance Act, 1994, and therefore the issuance of the said show cause notice could not be said to be without jurisdiction.

The Court thus held that by issuing the Demand-cum-Show Cause Notice, the revenue authorities had exercised the authority within the realm of the Finance Act, 1994.

The Court thus dismissed the writ petition of the assessee, while permitting the assessee to submit his reply to the said show cause notice before the adjudicating authority, within 30 days from the date of the judgment passed by the High Court.

Case Title: Sanjib Das versus Union of India and Ors.

Citation: 2022 LiveLaw (Gau) 40

Dated: 13.05.2022 (Gauhati High Court)

Counsel for the Petitioner: MR. AK Gupta

Counsel for the Respondent: ASSTT. S.G.I.

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