**Bombay High Court Rules Tax Authorities Must Issue Pre-Consultation Notice Before Service Tax Show Cause Notices Exceeding Rs 50 Lakh**
*Mumbai:* The Bombay High Court has delivered a significant judgment mandating that tax authorities must issue a pre-consultation notice before serving show cause notices (SCNs) for service tax demands exceeding Rs 50 lakh. This ruling came during the hearing of seven petitions filed by developers, banks, and contractors challenging SCNs issued without prior consultation.
**Petitioners Challenged SCNs Across Sectors**
The petitions were filed by various entities including 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 petitioners challenged the SCNs issued by the Service Tax Department without any pre-consultation.
On January 30, 2023, the Bombay High Court had granted interim relief to the petitioners by staying the SCNs, pending the final decision.
**Pre-Consultation a Mandatory Safeguard**
The central issue before the court was whether the pre-consultation process—introduced by the Central Board of Excise and Customs’ (CBEC) Master Circular dated March 10, 2017, and further clarified on November 19, 2020—is mandatory under Section 73 of the Finance Act, 1994.
While the Finance Act does not explicitly mention pre-consultation, the CBEC circular requires it in cases where tax demands exceed Rs 50 lakh.
**Revenue’s Argument Rejected by Bombay High Court**
The Revenue contended that the absence of a pre-consultation notice would not render the SCNs invalid. However, the court disagreed, citing precedents from several other High Courts including Delhi, Gujarat, and Madras, which had already ruled in favor of mandatory pre-consultation.
The bench, comprising Justices MS Sonak and Advait Sethna, emphasized that the pre-consultation step is not an “empty formality” but a crucial 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,” the bench observed.
Further, the court noted that during the pre-consultation process, “the department may convince the assessee or be convinced itself regarding the necessity or otherwise of raising tax demands.”
Holding that the challenged SCNs were issued without following this mandatory step, the bench quashed them. Nonetheless, the court also protected the revenue’s interests by excluding certain periods from the limitation clock.
**Court Directs Fresh Pre-Consultation Within Six Weeks**
While quashing the existing SCNs, the Bombay High Court directed the revenue authorities to issue fresh pre-consultation notices within four weeks. The assessees must respond within two weeks, with the entire process to be completed within six weeks.
The bench stressed that subsequent SCNs may be issued based on the outcomes of the pre-consultation.
Importantly, the court clarified that the period covered by the interim relief (from January 30, 2023) and the pre-consultation process will not count towards the limitation period.
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https://www.freepressjournal.in/mumbai/bombay-hc-rules-pre-consultation-notice-mandatory-before-issuing-service-tax-scns-above-50-lakh