Bombay HC: Pre-Consultation Mandatory for Service Tax SCNs Above Rs. 50 Lakh

A batch of writ petitions, including Rochem Separation Systems (India) Pvt. Ltd. v. Union of India & Ors., challenged the issuance of Show Cause Notices (SCNs) under Section 73 of the Finance Act, 1994, where service tax demands raised were all above Rs. 50 lakhs. The petitioners argued that these SCNs were issued without holding a mandatory pre-show cause notice consultation as prescribed under CBEC Master Circular No. 1053/02/2017-CX dated 10.03.2017 and clarified further in Circular No. 1076/02/2020-CX dated 19.11.2020.

Main Issue: Whether the requirement of pre-consultation is mandatory before the issuance of an SCN under Section 73 of the Finance Act, 1994, for demands above Rs. 50 lakhs, in light of CBEC Circular No. 1053/02/2017-CX and Circular No. 1076/02/2020-CX.

HC’s Decision: The Hon’ble High Court allowed the petitions, holding that pre-show cause notice consultation is mandatory for service tax demands exceeding Rs. 50 lakhs. The Court placed reliance on the explicit language of the CBEC Master Circular dated 10.03.2017, which categorically provides that the Board “has made pre show cause notice consultation… mandatory” for demands above the threshold. It further noted that the 2020 circular reiterated that “pre-show cause notice consultation with assessee… is mandatory.”  The Court ruled that non-compliance with this statutory mandate vitiated the initiation of proceedings, and therefore the impugned SCNs were unsustainable.

Thus, the SCNs were quashed, affirming that the failure to comply with the mandatory requirement of pre-consultation constitutes a fatal flaw.

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