Court finds issuance of notice without pre-show cause consultation illegal, orders adherence to mandatory procedures under Central Excise Act and CBEC Circulars.
In a significant judgment, the Bombay High Court has set aside a show cause notice issued to M/s. Sheesha Sky Lounge Hospitality and Services Pvt. Ltd. by the Central Excise authorities, citing non-compliance with mandatory pre-show cause notice consultation procedures. The Division Bench, comprising Justices G.S. Kulkarni and Aarti Sathe, ruled that the issuance of the notice violated the Central Excise Act, 1944, and related CBEC Circulars, which necessitate a pre-show cause consultation for demands exceeding Rs. 50 lakhs.
The controversy arose when Sheesha Sky Lounge, operating two non-air-conditioned rooftop restaurants in Mumbai, was served with a notice demanding service tax payments amounting to Rs. 1.26 crore. The petitioner contested the legality of the notice, arguing that it was issued without the mandatory pre-show cause consultation as per CBEC Circulars dated 10 March 2017 and 19 November 2020.
The court observed that the pre-show cause notice consultation is an essential step to ensure transparency and voluntary compliance, as emphasized in the CBEC Circulars. The judgment highlighted that the consultation process is obligatory for demands above Rs. 50 lakhs, except in cases related to preventive or offence-related show cause notices.
The court rejected the Revenue's argument that prior intimation through summons sufficed as a substitute for the pre-show cause consultation. It underscored the importance of adhering to established legal procedures, thereby ruling the notice invalid due to procedural lapses.
In its order, the court directed the Revenue to initiate a pre-consultation process with Sheesha Sky Lounge within three weeks. The process must be completed in six weeks from the date of notice receipt, allowing the authorities to decide on the necessity of issuing a fresh show cause notice based on the consultation's outcome.
The decision echoes a similar precedent set in the case of Rochem Separation Systems (India) Pvt. Ltd., where the court emphasized adherence to procedural mandates under the Central Excise Act.
This judgment reinforces the judiciary's role in safeguarding procedural fairness and the rights of businesses against arbitrary administrative actions.
Bottom Line:
Issuance of a show cause notice without following the mandatory pre-show cause notice consultation process as prescribed under CBEC Circulars dated 10 March 2017 and 19 November 2020 violates section 37B of the Central Excise Act, 1944, and is liable to be set aside.
Statutory provision(s): Central Excise Act, 1944 Sections 37B and 37C, CBEC Circulars dated 10 March 2017 and 19 November 2020, Article 226 of the Constitution of India.
