Show cause notice set aside for lack of pre-consultation, respondents granted chance to restart proceedings

The Court found the show cause notice issued without mandatory pre-show cause consultation to be arbitrary and against the circular. The Court set aside the notice but granted liberty to the respondents to initiate fresh proceedings, starting from the consultation stage within 60 days. The writ petition was allowed, providing the respondents an opportunity to proceed afresh in compliance with circular requirements.

---

---

Issues:
1. Validity of show cause notice and audit notes.
2. Absence of mandatory pre-show cause notice.
3. Compliance with circular regarding consultation.

Analysis:

Issue 1: Validity of show cause notice and audit notes
The petitioner, engaged in construction, faced discrepancies noted during an audit for the period October 2016 to June 2017. Despite objections raised by the petitioner regarding the audit notes, a show cause notice was issued alleging service tax underpayment. The petitioner challenged the legality of the show cause notice and audit notes, claiming they were unauthorized and contrary to the law.

Issue 2: Absence of mandatory pre-show cause notice
The petitioner argued that the show cause notice was invalid due to the absence of a mandatory pre-show cause notice, as required by the Master Circular issued by the Central Board of Excise and Customs. The respondents contended that the audit notes did contain the required Document Identification Number (DIN), albeit with an additional digit due to an error. They justified the urgency of issuing the show cause notice to avoid time bar limitations.

Issue 3: Compliance with circular regarding consultation
The Court examined the mandatory requirement of pre-show cause notice consultation as per the circular issued by the Central Board of Excise and Customs. The circular emphasized the importance of consultation to promote voluntary compliance and reduce the necessity of issuing show cause notices. The Court held that the circular was binding on the department and its officers, citing relevant judgments.

In the judgment, the Court found the show cause notice issued without the mandatory pre-show cause consultation to be arbitrary and against the circular. Consequently, the Court set aside the show cause notice but granted liberty to the respondents to initiate fresh proceedings, starting from the pre-show cause notice consultation stage within 60 days. The writ petition was allowed, with the respondents given the opportunity to proceed afresh in compliance with the circular requirements.

---