The Bombay High Court ruled that pre-show cause consultation is mandatory for service tax demands exceeding Rs. 50 lakhs under CBEC circulars.
In a recent ruling, the Bombay High Court held that a pre-show cause consultation is mandatory for service tax demands exceeding Rs. 50 lakhs under the CBEC Circulars, and that any show cause notice issued without such consultation is invalid.
Rochem Separation Systems (India) Pvt. Ltd., the petitioner, filed a writ petition challenging the show cause notice issued under Section 73 of the Finance Act, 1994. The notice demanded service tax exceeding Rs. 50 lakhs.
The petitioner’s counsel argued that the notice was issued without following the mandatory pre-show cause consultation required under Master Circular No. 1053/02/2017-CX dated 10 March 2017 and Circular No. 1076/02/2020-CX dated 19 November 2020.
The petitioner’s counsel argued that both circulars clearly make pre-consultation compulsory in all cases where the demand exceeds Rs. 50 lakhs, except for preventive or offence-related matters. He further argued that the CBEC circulars are binding on departmental officers under Section 83 of the Finance Act, 1994 read with Section 37B of the Central Excise Act, 1944.
The department’s counsel argued that Section 73 of the Finance Act, 1994 does not mention pre-show cause consultation and that the requirement under the circulars is only directory, not mandatory.
They also referred to the Special Leave Petition filed against the Delhi High Court’s decision in Amadeus India Pvt. Ltd., stating that the issue is still pending before the Supreme Court. He requested that if the show cause notices are quashed, the department be protected from the bar of limitation.
The Division Bench comprising Justice M.S. Sonak and Justice Advait M. Sethna observed that the CBEC circulars are binding on the department. The court explained that the circulars dated 10 March 2017 and 19 November 2020 clearly state that pre-consultation is mandatory for demands above Rs. 50 lakhs unless the case falls under the exception for offence or preventive matters.
The court explained that this process is intended to encourage trade facilitation and voluntary compliance, and to help resolve disputes before issuing a show cause notice. The court referred to several judgments from the Delhi, Gujarat, Madras, and Bombay High Courts, which have consistently held that pre-show cause consultation is a mandatory step.
The court pointed out that the Supreme Court’s order dated 4 November 2019 in the Amadeus India SLP did not stay or overturn the finding that pre-show cause consultation is mandatory, but was confined only to the issue of limitation. The court further observed that pre-consultation is not an empty formality but a meaningful opportunity to resolve disputes.
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