2022 (5) TMI 987 - HC - Service Tax

Validity of Demand-cum-Show-Cause Notice - seeking direction that the respondent authorities should provide an opportunity of pre-show cause notice consultation to the petitioner - whether the Circular dated 11.11.2021 is clarificatory in nature thereby clarifying the Master Circular dated 10.03.2017? - Suppression of facts or not - HELD THAT - A Perusal of the said Circular dated 11.11.2021 stipulates that the concept of pre-show cause notice consultation in Central Excise and Service Tax was introduced vide the Board s instructions dated 21.12.2015 as a trade facilitation measure. Thereupon in para 5 of the Master Circular No.1053/02/2017-CX dated 10.03.2017, the said principle of pre-show cause notice consultation was reiterated. Subsequent thereto, a reference was received from the DGGI to clarify whether the DGGI formation fell under the exclusive/inclusive category of the CBEC instructions dated 21.12.2015 or otherwise and in that regard it was clarified that the exclusion from pre-show cause notice consultation is case-specific and not formation specific. In Clause 5 of the said Circular it was reiterated that the pre-show cause notice consultation shall not be mandatory for those cases booked under the Central Excise Act, 1944 or Chapter V of the Finance Act, 1994 for recovery of duties or taxes not levied or paid or short levied or short paid or erroneously refunded for the reason mentioned in sub-clauses (a) to (e) of Clause 5. A perusal of the said Circular does not bring anything new. As the stand taken by the respondent authorities in the impugned show cause notice dated 31.12.2020 that the petitioner had suppressed material facts, the same would come within the exception as mentioned in Clause 5 (d) of the Circular dated 11.11.2021 and as such it was not mandatory for respondent authorities to have a pre-show cause notice consultation. Another aspect also needs to be looked into, i.e., whether the authority which had issued the Demand-cum-Show Cause Notice dated 31.12.2021 had the authority to do so. The power so exercised by the authority is a statutory power conferred upon the respondent authorities under Section 73 of the Finance Act of 1994 and as such the issuance of the said show cause notice cannot be said to be without jurisdiction. Whether there was suppression of facts in the case of the petitioner? - HELD THAT - Taking into consideration that this Court is at the stage of deciding whether the said Demand-cum-Show Cause notice dated 31.12.2020 is beyond the jurisdiction and this Court having held that the respondent authorities issuing the Demand-cum-Show Cause Notice have exercised the authority within the realm of the Finance Act, 1994, this Court would not like to go into the said question as any opinion rendered may affect the petitioner or the respondent as the case may be. Taking into consideration that the petitioner has approached this Court and the matter has been pending adjudication, this Court deems it proper to permit the petitioner to submit his show cause reply within a period of 30 (thirty) days from the date of this judgment before the adjudicating authority as mentioned in the Corrigendum dated 21.02.2022. Upon furnishing the said show cause reply, the respondent adjudicating authority, i.e., the respondent No. 5 is directed to offer the petitioner an opportunity of hearing either online or physically in person or through the authorized representative - this writ petition stands disposed of.

Issues Involved:
1. Validity of Demand-cum-Show-Cause Notice without pre-show cause notice consultation.
2. Applicability and retrospective effect of the Circular dated 11.11.2021.
3. Suppression of facts by the petitioner.
4. Legality and validity of the Corrigendum dated 21.02.2022.

Issue-wise Detailed Analysis:

1. Validity of Demand-cum-Show-Cause Notice without pre-show cause notice consultation:
The petitioner argued that the issuance of the Demand-cum-Show-Cause Notice dated 31.12.2020 without pre-show cause notice consultation violated Clause 5 of the Master Circular on Show Cause Notice, Adjudication, and Recovery dated 10.03.2017. The petitioner claimed that this omission rendered the notice without jurisdiction. However, the respondent countered that the Circular dated 11.11.2021, which clarified the pre-show cause notice consultation requirement, specified that it was not mandatory in cases involving fraud, collusion, willful mis-statement, suppression of facts, or contravention of provisions with intent to evade payment of duties or taxes.

2. Applicability and retrospective effect of the Circular dated 11.11.2021:
The court examined whether the Circular dated 11.11.2021 was clarificatory in nature and thus applicable retrospectively. The Circular reiterated that pre-show cause notice consultation was not mandatory for cases involving suppression of facts. The court concluded that the Circular was indeed clarificatory and should be considered to operate retrospectively from the date of the Board’s instructions dated 21.12.2015 and the Master Circular dated 10.03.2017. Consequently, the court held that the respondent authorities were not mandated to have a pre-show cause notice consultation in the petitioner’s case, as it involved allegations of suppression of facts.

3. Suppression of facts by the petitioner:
The petitioner argued that the issuance of a second show cause notice on similar facts and allegations as the first notice (dated 08.12.2016) could not be considered suppression of facts, citing the Supreme Court judgment in Nizam Sugar Factory vs. Collector of Central Excise, A.P. The court, however, refrained from delving into whether there was suppression of facts, as it was beyond the scope of determining the jurisdiction of the Demand-cum-Show-Cause Notice at this stage.

4. Legality and validity of the Corrigendum dated 21.02.2022:
The petitioner challenged the Corrigendum that reassigned the adjudicating authority to Aizawl, arguing it would be difficult to attend hearings there. The court noted that the petitioner was given the option to appear for personal hearings either online or physically. The court found no reason to interfere with the administrative decision to change the adjudicating authority and upheld the Corrigendum.

Conclusion:
The court concluded that the respondent authorities had the jurisdiction to issue the Demand-cum-Show-Cause Notice dated 31.12.2020 and that the Circular dated 11.11.2021 applied retrospectively. The court directed the petitioner to submit a show cause reply within 30 days and mandated the adjudicating authority to offer a hearing opportunity either online or in person. The court clarified that its observations were limited to the jurisdictional issue and did not address the merits of the demand in the show cause notice. The writ petition was disposed of with these directions.

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