2023 (1) TMI 1474 - HC - Service Tax

Pre-consultation required for Show Cause Notices over 50 lakh; court stays execution pending Supreme Court ruling.

The HC acknowledged the mandatory requirement for pre-consultation before issuing Show Cause Notices (SCNs) demanding service tax exceeding fifty lakh ... Validity of SCN - SCN demanding service tax issued without prior pre-consultation - time limitation - HELD THAT:- One of the issue that is agitated is the consequences of setting aside the Show Cause Notices on the aspect of limitation. It is noted that it is on this restricted aspect notice is issued by the Hon’ble Supreme Court. Prima facie, from the limited argument advanced by the Revenue and the issue being restricted to the limitation aspect, the mandatory nature of pre consultation is impliedly accepted by the Revenue. In these circumstances, it is deemed appropriate that since the issue is pending before the Hon’ble Supreme Court and to avoid any further litigation, to list the petitions for hearing. Since the arguable questions are raised, Rule in these petitions - the execution and operation of the impugned Show Causes Notices is stayed. ISSUES PRESENTED and CONSIDEREDThe primary issue presented in these petitions is whether the issuance of Show Cause Notices (SCNs) demanding service tax from the petitioners without prior pre-consultation is valid. This question arises from the circular issued by the Central Board of Excise and Customs, which mandates pre-consultation for demands exceeding fifty lakh rupees. The court also considers the implications of setting aside SCNs concerning the limitation period.ISSUE-WISE DETAILED ANALYSISPre-Consultation Requirement for Show Cause Notices- Relevant Legal Framework and Precedents: Section 73 of the Finance Act, 1994, outlines the procedure for issuing SCNs for service tax recovery. While Section 73 does not explicitly mandate pre-consultation, the requirement has been introduced through the Master Circular No. 1053/02/2017-CX dated 10 March 2017 by the Central Board of Excise and Customs. This circular, further clarified by a subsequent circular dated 19 November 2020, stipulates mandatory pre-consultation for claims exceeding fifty lakh rupees to facilitate trade and promote voluntary compliance.- Court's Interpretation and Reasoning: The Court recognizes the mandatory nature of pre-consultation as per the circulars, despite the absence of such a requirement in the statutory text of Section 73. The Court notes that the circular aims to reduce the necessity of issuing SCNs by encouraging voluntary compliance through pre-consultation.- Key Evidence and Findings: The petitioners argue that the SCNs issued to them, all involving demands above fifty lakh rupees, were not preceded by the mandatory pre-consultation. This procedural lapse forms the basis of their challenge to the SCNs.- Application of Law to Facts: The Court applies the circular's requirement to the facts, finding that the absence of pre-consultation constitutes a procedural deficiency in the issuance of the SCNs. The Court acknowledges that various precedents, including decisions from other High Courts, support the mandatory nature of pre-consultation.- Treatment of Competing Arguments: The Revenue's limited argument focuses on the implications of setting aside SCNs on the limitation period. The Court notes that the Revenue implicitly accepts the mandatory nature of pre-consultation by focusing on the limitation aspect.- Conclusions: The Court concludes that the SCNs issued without pre-consultation are procedurally flawed. However, the Court refrains from making a final determination on this issue due to the pending related matter before the Supreme Court.Consequences of Setting Aside Show Cause Notices on Limitation- Relevant Legal Framework and Precedents: The issue of limitation arises from the potential setting aside of SCNs due to procedural defects. The Court considers the implications of such an action on the limitation period for issuing fresh SCNs.- Court's Interpretation and Reasoning: The Court refers to the Supreme Court's notice on this issue, indicating that the limitation aspect is a significant consideration. The Court acknowledges the potential for further litigation if the SCNs are set aside without addressing the limitation issue.- Key Evidence and Findings: The Court notes the Supreme Court's involvement in a related matter concerning the limitation aspect, which suggests the need for caution in making a determination.- Application of Law to Facts: The Court considers the potential consequences of setting aside the SCNs, particularly regarding the limitation period for issuing new SCNs. The Court opts to defer a final decision on this issue pending the Supreme Court's resolution.- Treatment of Competing Arguments: The Court recognizes the Revenue's focus on the limitation aspect, which implies acceptance of the procedural flaw regarding pre-consultation. The Court balances this with the need to avoid further litigation.- Conclusions: The Court decides to stay the execution and operation of the impugned SCNs and lists the petitions for further hearing, pending the Supreme Court's determination on the limitation issue.SIGNIFICANT HOLDINGS- The Court acknowledges the mandatory nature of pre-consultation for SCNs demanding service tax above fifty lakh rupees as per the circulars issued by the Central Board of Excise and Customs.- The Court refrains from making a final determination on the validity of the SCNs due to the procedural flaw of lacking pre-consultation, pending the Supreme Court's decision on the related limitation issue.- The Court stays the execution and operation of the impugned SCNs and lists the petitions for further hearing, recognizing the arguable questions raised and the need to avoid further litigation.- The Court grants liberty to the parties to apply, indicating openness to further submissions or developments in the case.