Case Note & Summary
The dispute arose from a writ petition filed by a company running non-air-conditioned rooftop restaurants challenging a show cause notice dated 30 December 2020 issued by tax authorities demanding service tax of Rs.1,26,03,575/- for the period October 2014 to June 2017. The petitioner contended that its restaurants were exempt from service tax under relevant notifications and CBEC circulars, and that the notice was illegal as it bypassed mandatory pre-show cause consultation requirements under Sections 37B and 37C of the Central Excise Act, 1944, read with CBEC Circulars dated 10 March 2017 and 19 November 2020. The core legal issue was whether the show cause notice could be issued without complying with these mandatory consultation requirements. The petitioner argued that the circulars were binding on the department and that a similar issue had been decided in its favor by a coordinate bench in Roche m Separation Systems (India) Pvt. Ltd. versus The Union of India & Ors. The respondents justified the notice, contending that sufficient intimation was given via summons and that the petitioner avoided appearance, making consultation unnecessary. The court analyzed the provisions of Sections 37B and 37C of the Central Excise Act, 1944, which were applicable via Section 83 of the CGST Act, 2017, and the CBEC circulars which mandated pre-show cause consultation for demands above Rs.50 lakhs. The court found that the mandate of the circulars had been completely breached as no consultation notice was issued, and thus the show cause notice was illegal. Consequently, the court allowed the petition and quashed the impugned show cause notice.
Headnote
A) Administrative Law - Tax Administration - Mandatory Pre-Show Cause Consultation - Central Excise Act, 1944, Sections 37B, 37C - CBEC Circulars dated 10 March 2017 and 19 November 2020 - Petitioner challenged show cause notice demanding service tax, alleging breach of mandatory pre-show cause consultation requirement under CBEC circulars - Court held that circulars issued under Section 37B are binding on department and consultation is mandatory for demands above Rs.50 lakhs, except for preventive/offence related notices - Impugned notice quashed as consultation was not conducted (Paras 2,6-8,12-14). B) Constitutional Law - Writ Jurisdiction - Judicial Review of Administrative Action - Constitution of India, Article 226 - Petitioner filed writ petition under Article 226 challenging show cause notice issued by tax authorities - Court exercised jurisdiction to examine legality of administrative action based on non-compliance with statutory circulars - Held that writ petition maintainable to quash notice issued in violation of mandatory procedural requirements (Paras 1-2,14). C) Tax Law - Service Tax - Exemption for Non-Air-Conditioned Restaurants - Finance Act, 1994, Sections 73, 72 - Central Goods and Services Tax Act, 2017, Section 174 - Petitioner contended restaurants were non-air-conditioned and exempt from service tax under CBEC Circular dated 07 October 2013 - Court noted factual background but decision primarily based on procedural violation of pre-show cause consultation requirement - No final determination on exemption claim made (Paras 3-5).
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Issue of Consideration: Whether the impugned show cause notice dated 30 December 2020 could have been issued by respondent no.2, bypassing the mandatory requirements prescribed under Sections 37B and 37C of the Central Excise Act, 1944, read with Circular No. 1053/2/2017-CX dated 10 March 2017 and Circular No.1076/02/2020-Cx dated 19 November 2020 stipulating issuance of a notice for pre-show cause consultation.
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Final Decision
The court allowed the petition and quashed the impugned show cause notice dated 30 December 2020.
