A bench led by Justice Surya Kant made these observations while deciding the tax department’s appeal against a 2017 order of the Customs, Excise and Service Tax Appellate Tribunal, Chandigarh that set aside a show cause notice issued to Merino Panel Product.
The apex court said if the show cause notice issued is found to be contrary to the Central Board of Excise and Customs (CBEC) circular of July 1, 2002, it would prima facie result in abrogation of the uniformity and consistency which is strongly emphasised upon in earlier judgments in the case of Ranadey Micronutrients.
“It goes without saying that the Revenue’s stance against its own circular can potentially lead to a chaotic situation where, with one hand, the Revenue would lay down instructions on how to interpret the relevant statutes and rules, and with the other hand, it would promptly disobey those very directions,” the judgment stated.
However, in this case, the SC upheld the show cause notices issued by the commissioner to Merino.
The department found sales to two ‘related parties’ – Merino Industries and Merino Services – by Merino Panel were undervalued compared to those made to non-related independent entities, leading to loss of excise duty.
Merino Panel, however, contended that the 2002 CBDT circular had clarified the methodology to be adopted for determining the value of goods when sales were made to both independent and related buyers, thus the showcase notices were contrary to the circular itself.
While the Department’s hands are tied with regard to its circulars, no such prohibition operates on courts and tribunals, the SC said, adding that it is incumbent upon the adjudicatory bodies to ascertain the correct position of law unencumbered by the Revenue’s interpretation as crystallised in its administrative directions.