Omission of mandatory pre-show cause notice consultation for demands exceeding fifty lakhs vitiates the notice.

The Petitioner operates two non-air-conditioned rooftop restaurants in Mumbai

Under Notification No. 25/2012-ST (as amended), services provided by non-air-conditioned restaurants were exempt from service tax

On 29 December 2020, the Petitioner’s Chartered Accountant received an email inquiry regarding alleged short payment of service tax for the period October 2014 to June 2017, requesting information within three days

However, the very next day, on 30 December 2020, the Respondents issued the impugned Show Cause Notice (SCN) demanding service tax of ₹1,26,03,575/- along with interest and penalties

The Petitioner challenged the SCN on the grounds that it was issued without the mandatory pre-show cause consultation required by law

1. Whether the impugned Show Cause Notice dated 30 December 2020 was issued in violation of the mandatory requirements for pre-show cause consultation prescribed under Sections 37B and 37C of the Central Excise Act, 1944, read with CBEC Circulars dated 10 March 2017 and 19 November 2020

The court primarily applied Section 37B of the Central Excise Act, 1944, which mandates that Central Excise Officers must observe and follow the instructions and directions issued by the Central Board of Excise and Customs (CBEC)

It relied on CBEC Circular No. 1053/2/2017-CX (10 March 2017) and Circular No. 1076/02/2020-Cx (19 November 2020), both of which stipulate that a pre-show cause notice consultation with the assessee is mandatory for cases involving duty demands above ₹50 lakhs

The court further adhered to the precedent set in Rochem Separation Systems (India) Pvt. Ltd. v. The Union of India & Ors., which established that failure to comply with these mandatory circulars vitiates the SCN

The Court observed that the statutory framework under Section 37B of the Central Excise Act makes Board instructions binding on Departmental officers

The relevant CBEC circulars explicitly state that pre-SCN consultation is an "important step towards trade facilitation" and is "mandatory" for demands exceeding ₹50 lakhs

In the present case, the demand exceeded ₹1.26 crore, yet the Respondents issued the SCN just one day after the initial inquiry without providing an opportunity for consultation

The Court rejected the Revenue’s argument that the issuance of a summons served as sufficient intimation, holding that a summons cannot substitute the specific, mandatory procedural requirement of a pre-show cause consultation

Consequently, the Revenue's failure to follow its own binding circulars rendered the SCN legally unsustainable

The High Court quashed and set aside the impugned SCN dated 30 December 2020

It directed Respondent No. 2 to initiate the pre-consultation process within three weeks and complete it within six weeks thereafter

The Court further ordered that the period during which the Petitioner was pursuing this writ petition (from 28 July 2021) shall be excluded for the purposes of calculating the limitation period should the Revenue decide to issue a fresh SCN following the consultation