Pre‑consultation mandatory as per Master Circular for High‑Value Excise/ Service Tax Demands

The Hon’ble Madras High Court in the case of M/s. Tamilnadu Transmission Corporation Ltd. Versus The Commissioner Of GST, The Commissioner Of Central GST And Central Excise, Salem - 2025 (12) TMI 1461 - MADRAS HIGH COURT held that the pre‑consultation process mandated by CBIC Master Circulars dated March 10, 2017 and November 19, 2020 is mandatory in all cases (including extended period matters) except where expressly carved out, and consequently quashed the impugned show cause notices and orders‑in‑original, reviving proceedings from the stage of pre‑consultation.

​Facts:

M/s. Tamilnadu Transmission Corporation Ltd. (TANTRANSCO) ('the Appellant(s)') is a State Government undertaking under TANGEDCO engaged in transmission of electricity, against whom central excise/service tax proceedings were initiated based on audit/departmental action across various circles, culminating in show cause notices and, in some matters, orders‑in‑original.

​The Commissioner of GST & Central Excise (Audit), Coimbatore Audit Commissionerate, and the Commissioner of Central GST & Central Excise, Salem ('the Respondent(s)') issued show cause notices and orders‑in‑original demanding tax/duty on various receipts such as liquidated damages, cheque dishonour charges, belated payment charges, forfeiture of EMD, and fines/penalties collected from consumers, treating them as taxable consideration under the then applicable central excise/service tax regime.

​The Appellant contended that no pre‑consultation as mandated by CBIC Master Circular No. 1053/02/2017‑CX dated March 10, 2017 was carried out before issuance of show cause notices or passing of orders‑in‑original, despite the demands exceeding the monetary threshold.

​The Respondent contended that Instruction F.No. 116/13/2020‑CX‑3 dated November 11, 2021 clarified that pre‑consultation is not mandatory where the extended period of limitation is invoked on grounds of fraud, suppression, etc., and that in such cases the Department could dispense with pre‑consultation. The Respondent contended that the show cause notices and orders‑in‑original were validly issued/passed and that the Appellant had efficacious alternate remedies.

​The Appellant, along with other TANGEDCO entities in a batch of 21 writ appeals and 9 writ petitions, challenged the show cause notices and orders‑in‑original before the High Court under Article 226, raising a common issue on the mandatory nature of pre‑consultation under the Central Excise regime.

​Issue:

Whether the pre‑consultative process envisaged by CBIC Master Circular No.1053/02/2017‑CX dated March 10, 2017 is mandatory prior to issuance of show cause notices / passing of orders‑in‑original for central excise/service tax demands (including cases involving extended period of limitation), and whether show cause notices and orders issued without such pre‑consultation are liable to be quashed.

Held:

The Hon’ble Madras High Court in M/s. Tamilnadu Transmission Corporation Ltd. Versus The Commissioner Of GST, The Commissioner Of Central GST And Central Excise, Salem - 2025 (12) TMI 1461 - MADRAS HIGH COURTheld as under:

• Observed that the common issue across the batch is “whether pre‑consultative process under the Central Excise Act is mandatory prior to issuance of show cause notice on the merits of the matter/passing of orders‑in‑original.”
• ​Noted that the Hon’ble Bombay High Court Division Bench in Rochem Separation Systems (India) Pvt. Ltd., Pyramid Developers, Leighton India Contractors Pvt. Ltd., Abhyudaya Co-Operative Bank Ltd., M.R. Realtors, Galaxy Realtors, Dr Vinod Ranvirsing Vij Proprietor ‘Clinque Aesthetica’ Versus The Union of India Through its Secretary, Department of Revenue, Ministry of Finance, Government of India, New Delhi, The Principal Commissioner CGST & CX, Mumbai, The Joint Commissioner CGST & CX, Mumbai East, Commissioner of CGST & CX, Mumbai West Commissionerate, The Principal Commissioner CGST The Joint Commissioner CGST & CX, Mumbai East, The Central Board of Indirect Taxes and Customs, The Director General Directorate General of GST Intelligence Delhi, The Principal Additional Director General Directorate General of GST Intelligence Mumbai Zonal Unit. - 2025 (10) TMI 68 - BOMBAY HIGH COURT had considered an identical issue and held that “the requirement of a pre‑consultative process cannot be dismissed as some empty formality” and that the Master Circulars make this requirement as mandatory where tax demand exceeds Rs. 50 lakhs unless the case falls in specified exceptions; such circulars bind the Department.
• ​Observed that the Hon’ble Delhi High Court in Amadeus india pvt. Ltd. Versus Principal Commissioner, Central Excise, Service Tax And Central Tax Commissionerate  - 2019 (5) TMI 669 - DELHI HIGH COURT had also held pre‑consultation mandatory.
• Noted Board Instruction F.No. 116/13/2020‑CX‑3 dated November 11, 2021 which sought to confine mandatory pre‑consultation to non‑extended period cases and to exclude cases where extended period is invoked for fraud, suppression, etc.
• ​Observed that, invocation of extended limitation is itself a question of fact involving marshalling of evidence as to fraud, collusion, wilful mis‑statement, suppression of facts, etc., and that assessees are entitled to contest such invocation; therefore, there is no justification in the Department unilaterally excluding such cases from pre‑consultation, and allowed al the writ petitions and appeals.

​Our Comments:

The judgment squarely aligns with and adopts the Bombay High Court’s reasoning in  Rochem Separation Systems (India) Pvt. Ltd., Pyramid Developers, Leighton India Contractors Pvt. Ltd., Abhyudaya Co-Operative Bank Ltd., M.R. Realtors, Galaxy Realtors, Dr Vinod Ranvirsing Vij Proprietor ‘Clinque Aesthetica’ Versus The Union of India Through its Secretary, Department of Revenue, Ministry of Finance, Government of India, New Delhi, The Principal Commissioner CGST & CX, Mumbai, The Joint Commissioner CGST & CX, Mumbai East, Commissioner of CGST & CX, Mumbai West Commissionerate, The Principal Commissioner CGST The Joint Commissioner CGST & CX, Mumbai East, The Central Board of Indirect Taxes and Customs, The Director General Directorate General of GST Intelligence Delhi, The Principal Additional Director General Directorate General of GST Intelligence Mumbai Zonal Unit. - 2025 (10) TMI 68 - BOMBAY HIGH COURT, treating pre‑consultation as a mandatory, binding requirement under CBIC’s Master Circulars in high‑value central excise/service tax cases. The Court emphasises that these circulars are an institutionalised alternate dispute resolution mechanism intended to reduce unnecessary SCNs and litigation, and that they cannot be treated as an empty formality.

​ Relevant Provisions:

CBIC Master Circular No. 1053/02/2017‑CX dated March 10, 2017

Subject: Master Circular on Show Cause Notice, Adjudication and Recovery –reg.

“Kind attention is invited to Ninety two Circulars and Instructions on Show Cause Notices and Adjudication issued by the Board from time to time, placed at the Annexures to this Master Circular. These circulars address references from trade and field formations and provide clarity and uniformity on the issues raised. Board undertakes exercise of consolidating these circulars from time to time so as to ensure clarity and ease of reference.

This master circular on the subject of show cause notices, adjudication proceedings and recovery is an effort to compile relevant legal and statutory provisions, circulars of the past and to rescind circulars which have lost relevance. Annexure-I to the circular provides list of the eighty nine circulars which stand rescinded. Three circulars listed in Annexure-II have not been rescinded as they contain comprehensive instructions on the subject they address.

2. The master circular is divided into four parts. Part I deals with Show Cause Notice related issues, Part II deals with issues related to Adjudication proceedings, Part III deals with closure of proceedings and recovery of duty and Part IV deals with miscellaneous issues.​...”

​​Instruction in F. No. 116/13/2020‑CX‑3 dated November 11, 2021

“Subject: - Clarification in respect of the Master Circular No. 1053/02/2017- CX dated 10.03.2017-reg.

As a trade-facilitation measure, a concept of pre-show cause notice consultation in Central Excise and Service Tax was introduced vide Board's instruction dated 21.12.2015, issued vide F. No. 1080/09/DLA/MIS/15. Vide the said Instruction, it was clarified that 'Pre-show cause notice consultation with the Principal Commissioner and Commissioner is being made mandatory prior to issue of show cause notice (SCN) in the case of demand of duty above Rs.50 Lakhs (except for preventive/offence related SCNs)'.

2. Para 5.0 of the Master Circular No. 1053/02/2017-CX dated 10.03.2017 merely reiterates the principle of pre-show cause notice consultation enunciated vide aforementioned Instruction dated 21.12.2015. Further, vide Circular No. 1076/02/2020-CX dated 19.11.2020, it was clarified that 'Pre-show cause notice consultation with assessee, prior to issuance of SCN in case of demand of duty is above Rs. 50 Lakhs (except for preventive/offence related SCNs) is mandatory & shall be done by the Show cause notice issuing authority'.”

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