2025 (1) TMI 548 - HC - Service Tax

Challenge to SCN - SCN has been issued without authority and jurisdiction in violation of Section 73 (1) and Section 83 (A) of the Finance Act, 1994 - SCN raising a demand of service tax issued to the Petitioner is not preceded by a pre-consultation notice - HELD THAT - Whether pre-consultation as contemplated under the aforesaid Master Circular is mandatory or otherwise, has fallen for consideration of various High Courts. What is important atleast for us at this stage, is a decision of the High Court of Delhi in the case of Amadeus India Pvt. Ltd. Versus Principal Commissioner, Central Excise, Service Tax and Central Tax Commissionerate 2019 (5) TMI 669 - DELHI HIGH COURT . The Delhi High Court, by this decision, interalia held that pre-consultation is mandatory before issuance of the Show Cause Notice. Since in the facts of the case before the Delhi High Court, a pre-consultation notice was not issued, the impugned Show Cause Notice was set aside and the Court relegated by the parties to the stage prior to the issuance of the impugned show cause notice. In the present case, the issue raised is only with reference as to whether pre-consultation is mandatory or otherwise, and if so, what would be its effect. Since this issue is pending in several other Writ Petitions pending in this Court, coupled with the fact that the decision of the Hon ble High Court is pending consideration before the Hon ble Supreme Court, it is found that an arguable question is raised in the present Petition. Accordingly, Rule is issued. It is clarified that Rule is issued only on the limited aspect whether pre-consultation is mandatory or otherwise, and if it is held so, whether the Department can be allowed to proceed on the basis of the current show cause notice or whether they would have to issue a fresh show cause notice. Rule made returnable on 4th February 2025. List the above Writ Petition along with Writ Petition No.822 of 2021 and other connected matters.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

Whether the issuance of a Show Cause Notice (SCN) without a pre-consultation notice, as mandated by the Master Circular No. 1053/02/2017-CS dated 10th March 2017, is valid under the Finance Act, 1994.
Whether the requirement for pre-consultation, as per the Master Circular, holds a mandatory character and is enforceable against the Department.
What are the implications if the pre-consultation is deemed mandatory, particularly concerning the validity of the existing SCN and the necessity to issue a fresh SCN?

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of the SCN without Pre-consultation

Relevant Legal Framework and Precedents: The Finance Act, 1994, particularly Section 73 and Section 83(A), governs the issuance of SCNs for service tax recovery. The Master Circular issued by the Central Board of Excise and Customs mandates pre-consultation for claims above fifty lakhs.
Court's Interpretation and Reasoning: The court considered the decision of the Delhi High Court in Amadeus India Pvt. Ltd. vs. Principal Commissioner, which held that pre-consultation is mandatory before issuing an SCN. The court noted the absence of any conscious decision by the Respondents to bypass this requirement.
Key Evidence and Findings: It was admitted that the service tax demand exceeded fifty lakhs, triggering the pre-consultation requirement as per the Master Circular.
Application of Law to Facts: The court applied the legal requirement of pre-consultation to the facts, finding that the Respondents did not adhere to the Master Circular.
Treatment of Competing Arguments: The Petitioner's argument centered on the mandatory nature of pre-consultation, while the Respondents did not provide adequate justification for bypassing this step.
Conclusions: The court concluded that the SCN was issued without fulfilling the mandatory pre-consultation requirement, rendering it procedurally flawed.

Issue 2: Mandatory Character of Pre-consultation

Relevant Legal Framework and Precedents: Section 83 of the Finance Act, 1994, read with Section 37B of the Central Excise Act, 1944, binds departmental officers to instructions issued by the CBEC, including the Master Circular.
Court's Interpretation and Reasoning: The court emphasized the binding nature of the Master Circular, citing the decision in State of Tamil Nadu v. India Cements Ltd. and the Madras High Court's judgment in Tube Investment of India Ltd. v. Union of India.
Key Evidence and Findings: The court found no evidence that the Respondents had considered the exceptions to pre-consultation specified in the Master Circular.
Application of Law to Facts: The court applied the binding nature of the Master Circular to the facts, supporting the Petitioner's claim of mandatory pre-consultation.
Treatment of Competing Arguments: The Respondents' lack of adherence to the Master Circular was a significant factor in the court's decision.
Conclusions: The court held that pre-consultation is indeed mandatory and must be adhered to before issuing an SCN.

Issue 3: Implications of Mandatory Pre-consultation

Relevant Legal Framework and Precedents: The court referenced ongoing appeals and pending cases regarding the mandatory nature of pre-consultation.
Court's Interpretation and Reasoning: The court noted that the issue of mandatory pre-consultation is pending before the Supreme Court, indicating its significance and potential for broader implications.
Key Evidence and Findings: The court acknowledged the arguable nature of the question, given its consideration in multiple writ petitions.
Application of Law to Facts: The court applied a cautious approach, issuing a Rule on the limited aspect of pre-consultation's mandatory nature.
Treatment of Competing Arguments: The court balanced the need for procedural compliance with the pending legal clarifications from higher courts.
Conclusions: The court stayed the execution of the impugned SCN pending a final determination on the mandatory nature of pre-consultation.

3. SIGNIFICANT HOLDINGS

Verbatim Quotes of Crucial Legal Reasoning: "The mandatory character of the Master Circular can be traced to Section 83 of the Finance Act, 1994 which makes Section 37 B of the Central Excise Act, 1944 applicable in relation to service tax."
Core Principles Established: The court established that adherence to procedural requirements, such as pre-consultation, is crucial for the validity of SCNs. The binding nature of departmental instructions, when codified in circulars, reinforces this procedural necessity.
Final Determinations on Each Issue: The court issued a Rule on the limited aspect of the mandatory nature of pre-consultation, staying the execution of the SCN until a final determination is made. The court recognized the need for further legal clarification, pending before the Supreme Court.

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