Pre-SCN Consultation Mandatory for Service Tax Demands Over Rs. 50 Lakhs: Bombay HC

Rochem Separation Systems (India) Pvt. Ltd. Vs Union of India (Bombay High Court)

In a cluster of writ petitions led by Rochem Separation Systems (India) Pvt. Ltd. Vs Union of India, the Bombay High Court has decisively ruled that the pre-show cause notice (SCN) consultation process, as mandated by circulars from the Central Board of Indirect Taxes and Customs (CBIC), is a mandatory requirement for service tax demands exceeding Rs. 50 lakhs. Consequently, the court quashed the SCNs issued to the petitioners for non-compliance with this procedure.

The judgment provides significant clarity on the binding nature of departmental circulars and reinforces the importance of procedural fairness and trade facilitation before initiating adjudication proceedings.

Background and Core Contention

The central issue before the court was whether the pre-consultation step, stipulated in CBIC’s Master Circular dated March 10, 2017, and clarified by another circular on November 19, 2020, is a directory or a mandatory procedure.

The petitioners argued that these circulars explicitly make pre-consultation with the assessee mandatory for demands over Rs. 50 lakhs (except in cases involving fraud, suppression, etc.). They contended that this step was designed to promote voluntary compliance, reduce litigation, and facilitate trade. Since the tax authorities issued the SCNs without initiating this consultation, the petitioners asserted that the notices were legally invalid and should be set aside.