Mumbai: The Bombay High Court has ruled that tax authorities must issue a pre-consultation notice before serving show cause notices (SCNs) for service tax demands exceeding Rs 50 lakh. The court delivered the judgment while hearing seven petitions, including those filed by developers, banks and contractors.
Petitioners Challenged SCNs Across Sectors
The petitions were filed by Rochem Separation Systems (India), Pyramid Developers, Leighton India Contractors Pvt. Ltd., Abhyudaya Co-Operative Bank Ltd., M.R. Realtors, Galaxy Realtors and Vinod Ranvirsing Vij, proprietor of Clinque Aesthetica. All had challenged SCNs issued by the Service Tax Department without any pre-consultation. The HC had granted interim relief to petitioners on January 30, 2023 by staying the SCNs.
Pre-Consultation a Mandatory Safeguard
The core issue was whether a pre-consultation process — introduced by the Central Board of Excise and Customs’ (CBEC) Master Circular dated March 10, 2017 and clarified on November 19, 2020 — was mandatory under Section 73 of the Finance Act, 1994. While the Act itself does not mention pre-consultation, the circular requires it in cases where tax demands exceed Rs 50 lakh.
Revenue’s Argument Rejected by HC
The Revenue argued that the absence of pre-consultation would not invalidate the SCNs. The court disagreed, noting that several high courts, including Delhi, Gujarat and Madras, had already held otherwise. It emphasised that the step was not an “empty formality” but a key safeguard for businesses.
“The requirement has been introduced as an important step towards trade facilitation and promoting voluntary compliance, thereby reducing the need for issuing show cause notices in every case,” a bench of Justices MS Sonak and Advait Sethna observed. It added that during such a process, “the department may convince the assessee or be convinced itself regarding the necessity or otherwise of raising tax demands.”
Holding that the SCNs in question were issued without following this mandatory step, the bench quashed them. At the same time, it protected the Revenue’s interests by excluding certain periods from the limitation clock.
Court Directs Fresh Pre-Consultation Within Six Weeks
While quashing the SCNs, the high court has stated that the revenue authority may issue fresh pre-consultation notices within four weeks. The court had then asked the assessees to reply within two weeks, and directed that the entire process be completed within six weeks thereafter.
Also Watch:
The bench stressed that the SCNs may be issued depending on the outcomes of the spre-consultation notices. The period covered by interim relief (from January 30, 2023) and the pre-consultation process will not count towards limitation, the court clarified.
To get details on exclusive and budget-friendly property deals in Mumbai & surrounding regions, do visit: https://budgetproperties.in/
