2026 (3) TMI 974 - HC - Central Excise

Pre-show consultation requirement is mandatory and failure to issue it vitiates the subsequent show cause notice; notice quashed.

Pre-show consultation requirement in Board circulars was held mandatory where demands exceed the specified threshold; the court applied the Board's ... Validity of show cause notice issued without issuing a pre-show cause consultation notice (as mandated by Board circulars) - binding effect of Board instructions issued under Section 37B - applicability of Section 37B and Section 37C. Mandatory pre-show cause consultation - HELD THAT: - The Court held that the Master Circular dated 10 March 2017 and the subsequent Circular dated 19 November 2020, issued by the CBEC under the powers conferred by Section 37B, impose a mandatory requirement of a pre-show cause consultation in cases of demand above the specified monetary threshold. The impugned show cause notice was issued without any prior notice for pre-show cause consultation and therefore breached the mandatory procedure prescribed by the Board. The Department's reliance on having issued a summons and on the petitioner's alleged non-cooperation did not satisfy or dispense with the statutory and circular requirement of issuing a pre-consultation notice prior to issuing the show cause notice. [Paras 14, 15, 16] The impugned show cause notice is vitiated for having been issued in breach of the mandatory pre-show cause consultation requirement and is quashed. Insufficiency of summons as substitute for pre-consultation notice - HELD THAT:- Having quashed the impugned show cause notice for non-compliance with the mandatory pre-consultation process, the Court directed the Department to undertake the pre-consultation process by issuing a pre-consultation notice within the specified timeline and to complete the consultation in accordance with law. The Court also directed that the period from institution of the petition shall be excluded for purposes of limitation if a fresh show cause notice is subsequently issued, and clarified that this exclusion is without prejudice to any other exclusion or extension available to the Revenue under law. [Paras 15, 16] Department to issue pre-consultation notice within three weeks and complete pre-consultation within six weeks of receipt; limitation excluded from the date of institution of the petition as directed. Final Conclusion: The Court quashed the impugned show cause notice for failure to comply with the mandatory pre-show cause consultation mandated by CBEC instructions issued under Section 37B, directed the Department to carry out the prescribed pre-consultation within stipulated timelines before issuing any fresh show cause notice, and excluded the period of the petition from limitation while preserving other legal extensions available to the Revenue. Issues: Whether the show cause notice dated 30 December 2020 issued without issuing a pre-show cause consultation notice (as mandated by Board circulars) was valid.Analysis: The Court examined the applicability of Section 37B and Section 37C of the Central Excise Act, 1944 (as applied via the Central Goods and Services Tax Act, 2017) and the Master Circular dated 10 March 2017 and Circular dated 19 November 2020 which mandate pre-show cause consultations in cases of demands above Rs. 50 lakhs. The Court noted that the Board, under Section 37B, can issue binding instructions to Central Excise officers and that Section 37C prescribes modes of service of summons and notices. The Court found that the circulars require a distinct pre-consultation notice/consultation process prior to issuance of a show cause notice in specified cases and that the Department's reliance on issuing a summons or other intimation in lieu of the mandated pre-consultation notice was inconsistent with the mandatory requirements of the circulars. The Court also considered precedent of the Division Bench in Rochem Separation Systems (India) Pvt. Ltd., which quashed similar show cause notices and directed issuance of pre-consultation notices with specified timelines, and applied the same principles to the facts of the present petition.Conclusion: The impugned show cause notice dated 30 December 2020 is quashed and set aside; the Department is directed to issue a pre-consultation notice within three weeks and complete the pre-consultation process within six weeks of receipt, after which it may take further steps. The petition is allowed in favour of the petitioner.