Madras High Court Upholds 2014 Notification Granting Pan-India Powers To DGCEI Officers In Service Tax Cases

The Madras High Court has upheld a 2014 notification that authorised officers of the Directorate General of Central Excise Intelligence (now the Directorate General of GST Intelligence) to investigate service tax cases and issue show cause notices across India, regardless of where the taxpayer was located.

The court held that the Central Board of Excise and Customs (CBEC) was empowered to confer all-India jurisdiction on Central Excise officers through notifications issued under the Finance Act.

A division bench of Justice G. Jayachandran and Justice N. Mala dismissed a batch of appeals and affirmed the common order of the Single Judge.

"In our view, the appointment of officers vested with the power to exercise and discharge the duty under Chapter V of the Act, need not be restricted to local limits, but can be extended pan-India, in view of the fact that officers of the Directorate General of Goods and Services Tax Intelligence (DGGI) have already been empowered under Notification No.38 of 2001-C.E. (N.T.)dated 26.06.2001 to exercise pan-India jurisdiction. The subsequent Notification No.22 of 2014, dated 16.09.2014, is therefore to be read in conjunction with the Notification No.38/2001-C.E.(N.T.) dated 26.06.2001", the court ruled.

The court also held that pre-show cause notice consultation contemplated under the CBEC Master Circular dated March 10, 2017 is only recommendatory. It ruled that failure to follow the procedure does not invalidate a show cause notice.

The dispute arose from investigations launched by the Central Excise Department into the taxpayers' alleged failure to discharge service tax liability. Acting under the 2014 notification, officers of the Directorate General of Central Excise Intelligence investigated the cases and issued show cause notices.

In some matters, adjudication had already concluded with orders-in-original. The taxpayers challenged the notification, the show cause notices issued under it and, in some cases, the consequential orders-in-original.

The taxpayers argued that Rule 3 of the Service Tax Rules, 1994, restricted Central Excise officers to exercising powers only within the "local limits" assigned to them. They contended that the Board could not use delegated legislation to confer pan-India jurisdiction.

Relying on the Supreme Court's decisions in Commissioner of Customs v. Sayed Ali and Canon India Pvt. Ltd. v. Commissioner of Customs, they argued that multiple officers could not exercise overlapping jurisdiction. They also submitted that the show cause notices should be quashed because they had been issued without the pre-show cause notice consultation contemplated under the CBEC Master Circular dated March 10, 2017.

The revenue argued that the 2014 notification merely continued the legal position that had existed since 2001. It submitted that officers of the Directorate had long exercised pan-India powers.

It also contended that the expression "local limit" did not restrict the Board's statutory authority to assign all-India jurisdiction wherever required for effective administration of service tax laws.

Rejecting the challenge, the court held that Rule 3 of the Service Tax Rules did not prevent the Board from assigning all-India jurisdiction to Central Excise officers through notifications issued under the Finance Act. It observed that the expression "local limit" could not be interpreted to exclude pan-India jurisdiction.

The bench further held that the 2014 notification had to be read together with an earlier notification issued in 2001, under which officers of the Directorate had already been vested with nationwide jurisdiction.

The court also noted that the Supreme Court had already upheld the Board's authority to confer pan-India jurisdiction on Central Excise officers in National Building Construction Company Ltd. v. Union of India. Relying on that ruling, it held that the notification, which had remained in force for years, could not be invalidated through a narrow interpretation of the expression "local limit".

"The Notifications issued since 2001 have, in this regard, conferred pan-India jurisdiction upon the Central Excise Officers and the same has been acted upon throughout the country. Challenge to the plurality of jurisdiction and conferment of pan-India power on the Central Excise Officer been examined threadbare and held in favour of the Board. The notification which has sustained for decades and tested judicially cannot be upset by a pedantic interpretation.", the court ruled.

The court also rejected the taxpayers' challenge based on the absence of pre-show cause notice consultation. It held that the Master Circular was administrative in nature and could not override statutory provisions. The bench, therefore, concluded that non-compliance with the pre-consultation process was not a ground to quash the show cause notices.

"It is suffice to reiterate that the Master Circular suggesting pre-consultation is not mandatory but only recommendatory in nature.", the court ruled.

In matters where orders in original had already been passed, the court held that the taxpayers must pursue the statutory appellate remedies available under law. It declined to interfere in writ proceedings because the disputes involved questions of fact.

The bench ultimately dismissed the batch of writ appeals. It affirmed the common order of the Single Judge. It upheld the 2014 notification conferring pan-India jurisdiction on officers of the Directorate General of Central Excise Intelligence.

It declined to interfere with the impugned show cause notices. The court held that taxpayers aggrieved by the consequential orders-in-original must pursue the statutory appellate remedies available under law.

For Appellant: Hari Radhakrishnan

For Respondents: S. Vaitheeswari for DGGI