Court emphasizes consultative process for amicable dispute resolution, sets aside show cause notice

The court set aside the show cause notice due to non-compliance with the consultative process, emphasizing the necessity of a personal hearing for amicable dispute resolution. The respondent was directed to provide the petitioner with a proper opportunity for consultation before issuing any further notices. The court highlighted the importance of following the consultative process to reduce litigation and encourage voluntary compliance, ultimately closing the related matters without costs.

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Issues Involved:
1. Non-compliance with the consultative process.
2. Classification of services as 'business auxiliary service' or 'business support service'.

Issue-wise Detailed Analysis:

1. Non-compliance with the Consultative Process:

The petitioner challenges the show cause notice on the grounds that the consultative process mandated by Circulars and Departmental Instructions was not followed. These Circulars, issued by the Central Board of Excise, Customs, and Service Tax, emphasize a pre-show cause notice consultation to amicably resolve disputes before escalating them to the level of issuance of a show cause notice. The relevant Circulars include instructions dated 21.12.2015, 08.07.2016, 13.10.2016, and a Master Circular dated 10.03.2017.

The respondent countered this by asserting that the consultation process was followed, citing a communication dated 03.05.2018, which included detailed objections from the audit department. However, the court found that the consultation process was not adequately followed as there was no opportunity for a face-to-face consultation between the assessee and the assessing officer, which is a critical aspect of the consultative process as per the Circulars. The court emphasized that the consultative process is a measure of Alternative Dispute Resolution aimed at reducing litigation and promoting voluntary compliance.

The court referred to the Supreme Court's decision in C.B. Gautam vs. Union of India, which highlighted the importance of providing an opportunity for a personal hearing even if not explicitly stated in the statutory provisions. The court concluded that the consultative process mandates a personal hearing, which was denied to the petitioner in this case. Consequently, the impugned show cause notice was set aside, and the respondent was directed to afford the petitioner a full opportunity for hearing and consultation before issuing any further show cause notice.

2. Classification of Services as 'Business Auxiliary Service' or 'Business Support Service':

The petitioner also contended that the show cause notice sought to tax income from activities classified as 'business auxiliary service' or 'business support service' under the Finance Act, 1994. The petitioner argued that this issue had already been decided in their favor by the Customs, Central Excise, and Service Tax Appellate Tribunal (CESTAT) for later periods, as per the order dated 28.03.2018.

The respondent did not address this contention directly but focused on the procedural aspect of the consultation process. The court noted that the petitioner's reply to the audit query did not reference the CESTAT order, which could have been a significant point in their defense. However, the court's primary focus remained on the procedural lapse concerning the consultative process.

Conclusion:

The court allowed the writ petition, setting aside the impugned show cause notice and directing the respondent to provide the petitioner with an opportunity for a personal hearing and consultation before issuing any further show cause notice. The court emphasized the importance of adhering to the consultative process as a measure to reduce litigation and promote voluntary compliance. The connected WMPs were also closed, with no order as to costs.

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