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2025 (2) TMI 561 - HC - Service TaxIssuance of the show cause notices (SCNs) by the respondents without pre-SCN consultation - violation of Master Circular dated 10th March 2017 or not - SCNs issued fall within the exceptions outlined in the Circular No. 1079/03/2021-CX dated 11th November 2021 or not - HELD THAT - The SCN itself is absolutely vague and without reference to any of the contentions which are raised by the petitioners in pre-consultation which is already decided by the respondents-authorities vide order dated 19.10.2023 passed disposing such contentions during the pendency of these petitions. In the facts of the case the Adjudicating Authority has also passed an Order-in-Original dealing with such contentions of the petitioners confirming the demand. However the show cause notice dated 29th September 2020 did not contain any of the grounds on which Order-in-Original is passed or the grounds on which the objections are disposed of in pre-consultation during the pendency of these petitions. In such circumstances the respondents-authorities is required to issue a fresh show cause notice in accordance with law. In view of the decision of this Court in case of L AND T Hydrocarbon Engineering Ltd. 2022 (4) TMI 70 - GUJARAT HIGH COURT it is opined that none of the show cause notice except Special Civil Application No. 5685 of 2022 can be sustained in absence of pre-consultation notice. Even in Special Civil Application No. 5685 of 2022 the show cause notice contained the ingredients of the issue of liability of the petitioner but it only refers to the difference in value of income as per Form 26AS and as per Form ST-3 returns filed by the petitioner. In such circumstances the show cause notices issued in the respective petitions are hereby quashed and set aside and therefore as a consequence the Order-in-Original if any shall also be quashed and set aside with a liberty to the respondent-Department to initiate the proceedings or to revive the original show cause notice subject to outcome of the pending proceedings before the Hon ble Apex Court in accordance with law. Conclusion - Absence of mandatory pre-SCN consultation is fatal the the present SCN. Petition disposed off.
ISSUES PRESENTED and CONSIDERED
The core legal issues considered in this judgment include:
ISSUE-WISE DETAILED ANALYSIS 1. Pre-show Cause Notice Consultation Requirement - Legal Framework and Precedents: The Master Circular dated 10th March 2017 mandates pre-show cause notice consultation for demands above Rs. 50,00,000, except for preventive or offence-related SCNs. This requirement was reinforced by Circular No. 1079/03/2021-CX. - Court's Interpretation and Reasoning: The Court emphasized that the pre-show cause notice consultation is a mandatory procedural requirement aimed at reducing unnecessary litigation by narrowing down disputes before issuing SCNs. - Key Evidence and Findings: The Court noted that in most petitions, the SCNs were issued based on discrepancies between income reported in Form 26AS and Form ST-3 returns, without conducting the required pre-consultation. - Application of Law to Facts: The Court found that the respondents failed to adhere to mandatory pre-consultation procedures, rendering the SCNs procedurally flawed. - Treatment of Competing Arguments: The respondents argued that the SCNs were based on intelligence and thus exempt from pre-consultation. However, the Court rejected this, citing the clarification that exemptions are case-specific, not formation-specific. - Conclusions: The absence of mandatory pre-consultation was deemed fatal to the validity of the SCNs. 2. Exceptions to Pre-consultation Requirement - Legal Framework and Precedents: Circular No. 1079/03/2021-CX outlines exceptions to the pre-consultation requirement, such as cases involving fraud, collusion, or suppression of facts. - Court's Interpretation and Reasoning: The Court assessed whether the SCNs fell within these exceptions and concluded that they did not, as they were primarily based on discrepancies in reported income rather than fraud or suppression. - Key Evidence and Findings: The SCNs were found to lack specific allegations of fraud or collusion that would justify bypassing pre-consultation. - Application of Law to Facts: The Court applied the exceptions criteria and determined that the SCNs did not meet the threshold for exemption from pre-consultation. - Treatment of Competing Arguments: The respondents' claim that the SCNs were preventive was dismissed, as the Court highlighted the absence of preventive aspects in the SCNs. - Conclusions: The SCNs were not exempt from pre-consultation under the outlined exceptions. 3. Revival of Original Show Cause Notices - Legal Framework and Precedents: The pending proceedings before the Supreme Court regarding the revival of SCNs were noted, with reference to the decision in L AND T Hydrocarbon Engineering Ltd. - Court's Interpretation and Reasoning: The Court acknowledged the possibility of reviving SCNs post pre-consultation, subject to the outcome of the Supreme Court proceedings. - Key Evidence and Findings: The Court considered the procedural defects in the current SCNs and the ongoing Supreme Court case regarding SCN revival. - Application of Law to Facts: The Court allowed for the potential revival of SCNs, contingent on the Supreme Court's decision. - Treatment of Competing Arguments: The petitioners' concerns about the revival of SCNs were addressed by the Court's conditional allowance for such revival. - Conclusions: The Court granted liberty to the respondents to revive SCNs post pre-consultation, subject to the Supreme Court's ruling. SIGNIFICANT HOLDINGS - Crucial Legal Reasoning: "ABSENCE OF MANDATORY PRE-SHOW CAUSE NOTICE CONSULTATION IS FATAL TO THE PRESENT SHOW CAUSE NOTICE." - Core Principles Established: The mandatory nature of pre-show cause notice consultation for demands exceeding Rs. 50,00,000, unless specific exceptions apply, was reinforced. - Final Determinations on Each Issue: The SCNs were quashed due to the absence of pre-consultation, with liberty granted for revival contingent on the Supreme Court's decision. The Court underscored the procedural importance of pre-consultation in tax demand cases, emphasizing adherence to established guidelines to prevent unnecessary litigation.
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