Service tax demand notice quashed for failure to complete mandatory pre-notice consultation requirements

The Gujarat HC quashed a show cause notice for service tax demand exceeding Rs. 50 lakh due to the Department's failure to comply with mandatory pre-notice consultation requirements under the Master Circular dated 10.03.2017. Despite court directions on 14.03.2024 to complete pre-consultation by 18.04.2024, the respondent authorities failed to pass any order. The court granted liberty to the Department to pass appropriate orders based on pre-notice consultation conducted on 23.04.2024 and initiate fresh proceedings within limitation period if required.

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Issues:
1. Validity of the show cause notice issued by the respondent authorities for recovery of service tax.
2. Compliance with the mandatory requirement of pre-notice consultation as per the Master Circular dated 10th March 2017.
3. Adequate opportunity for consultation prior to the issuance of the show cause notice.
4. Jurisdiction of the Court to quash the order and direct the authority to deal with the matter afresh.

Analysis:
Issue 1: The petitioner sought relief against the show cause notice issued by the respondent authorities for the recovery of service tax amounting to Rs. 59,87,560 for the financial years 2014-15 to 2016-17. The petitioner contended that the notice was issued without complying with the mandatory pre-notice consultation requirement as per the Master Circular dated 10th March 2017.

Issue 2: The Court noted that the impugned show cause notice was issued without following the mandatory requirements of the Master Circular, which necessitated pre-show cause notice consultation for cases involving demands exceeding Rs. 50,00,000. The Court directed the respondent authorities to undergo the pre-consultation process before the next hearing date and maintain the show cause notice in abeyance.

Issue 3: The petitioner argued that despite the Court's order directing the respondent authorities to complete the pre-notice consultation by a specified date, no order was passed within the stipulated time frame. The Court referred to a previous case where the failure to grant adequate consultation prior to the issuance of a show cause notice led to the notice being quashed and set aside. The Court emphasized the importance of providing a reasonable opportunity for consultation before issuing such notices.

Issue 4: The Court exercised its jurisdiction to quash the impugned show cause notice due to the lack of adequate consultation before its issuance. It directed the respondent authority to conduct a fresh pre-show cause notice consultation and issue the show cause notice only after being satisfied with the consultation process. The Court clarified that the petitioner should cooperate fully and not raise the issue of limitation regarding the demand made by the respondent authority within the prescribed time limit.

In conclusion, the petition was disposed of, and the impugned show cause notice was quashed with liberty given to the respondent authority to pass an appropriate order within the conducted pre-notice consultation. The Court emphasized the importance of following procedural requirements and providing parties with adequate opportunities for consultation before taking enforcement actions.

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