Bombay High Court Quashes Tax Demand Notices Over Pre-consultation Lapses
Court Affirms Mandatory Pre-consultation Requirement for Tax Demands Exceeding Rs. 50 Lakhs
In a significant ruling, the Bombay High Court has quashed several show cause notices issued by the Revenue Department to Rochem Separation Systems (India) Pvt. Ltd. and others, due to non-compliance with mandatory pre-consultation procedures as outlined in the Circulars by the Central Board of Excise and Customs (CBEC). The judgment was delivered by a division bench comprising Justices M.S. Sonak and Advait M. Sethna.
The case revolved around the issuance of show cause notices concerning service tax demands that exceeded Rs. 50 lakhs. The petitioners contended that the notices were invalid as they were not preceded by a mandatory pre-consultation process, a requirement stipulated by CBEC Circular No. 1053/02/2017-Cx dated March 10, 2017, and further clarified by Circular No. 1076/02/2020-Cx dated November 19, 2020.
The CBEC circulars mandate that for tax demands above Rs. 50 lakhs, a pre-consultation notice must be issued to the assessee before proceeding with a show cause notice. This process is seen as an important step in promoting trade facilitation and voluntary compliance, while also serving as a measure to reduce unnecessary litigation.
Justice Sonak, delivering the judgment, emphasized the binding nature of these circulars on the Department, citing precedents from the Supreme Court and other High Courts which have upheld the mandatory requirement of pre-consultation notices. The court highlighted that such procedures are crucial for alternate dispute resolution and contribute significantly to the ease of doing business.
Despite arguments from the Revenue Department that the absence of pre-consultation notices does not invalidate the show cause notices, the court reaffirmed that non-compliance with the circulars renders the notices void. The judgment is consistent with the decisions of other High Courts, including Delhi and Gujarat, which have similarly quashed show cause notices for failing to adhere to pre-consultation requirements.
The Bombay High Court has directed the Revenue Department to initiate the pre-consultation process within four weeks and complete it within six weeks following the receipt of replies from the assessees. Depending on the outcome of this process, fresh show cause notices may be issued. Importantly, the court ruled that the period of limitation will not include the time between the interim stay and the completion of the pre-consultation process, safeguarding the interests of the Revenue Department.
This ruling underscores the judiciary's commitment to ensuring that statutory procedures are adhered to, reinforcing the principles of natural justice and promoting a facilitative approach to tax administration.
Bottom Line:
Pre-consultation notice is mandatory before issuing show cause notices for tax demands exceeding Rs. 50 lakhs, as stipulated in CBEC Master Circular dated 10 March 2017 and Circular dated 19 November 2020. Non-compliance renders show cause notices invalid.
Statutory provision(s): Finance Act, 1994 Section 73, CBEC Master Circular No. 1053/02/2017-Cx dated March 10, 2017, CBEC Circular No. 1076/02/2020-Cx dated November 19, 2020.
