The Hon’ble Bombay High Court in the case of Rochem Separation Systems India Pvt. Ltd. v. Union of India & Ors. [W.P. No. 822 of 2021, order dated September 23, 2025] held that pre-show cause consultation (as mandated for service tax demands over ₹50 lakhs by CBIC’s Master Circular No. 1053/02/2017-CS dated March 10, 2017 and CBIC’s Circular No. 1076/02/2020-Cx dated November 19, 2020 is compulsory for the department and binding. Show cause notices issued without this mandatory pre-consultation are liable to be quashed, though revenue may issue fresh notices after due process, and the limitation period is to be excluded for the duration of court proceedings and consultation.
Facts:
Rochem Separation Systems India Pvt. Ltd. (“the Petitioner”) challenged service tax show cause notices for amounts above ₹50 lakhs issued without prior pre-consultation by the department, as required by CBIC Circulars. The proceedings related to service tax recovery under Section 73 of the Finance Act, 1994. No pre-show cause consultation notice was provided to the Petitioner.
Union of India & Ors. (“the Respondent”) issued the impugned show cause notices and defended the action by claiming that pre-consultation was not mandatory and its omission did not invalidate the show cause notice, placing reliance on contrary High Court decisions (notably Madras, Patna) suggesting that Circular requirements are not mandatory.
The Petitioner contended that the Master Circular and subsequent clarificatory circulars specifically require pre-consultation for high-value demand cases, creating a binding obligation on the revenue under Section 37B of the Central Excise Act, and consistently upheld by Delhi, Bombay, and Gujarat High Courts.
The Petitioner approached the High Court by Writ Petition, seeking quashing of the impugned show cause notices on the ground of lack of mandatory pre-consultation process.
Issue:
Whether pre-show cause consultation is a mandatory condition precedent to issuing service tax show cause notices for demands over ₹50 lakhs, not involving fraud/offence, and what is the consequence of failure to do so?
Held:
The Hon’ble Bombay High Court in W.P. No. 822 of 2021 held as under:
- Held that, under the scheme of the Central Excise Act and Finance Act, the issuance of a show cause notice (SCN) is a jurisdictional requirement that cannot be bypassed or dispensed with, except in cases of ‘preventive or intelligence led’ action for protection of revenue.
- Held that, for demands/suits above ₹50 lakhs, the department must follow mandatory internal board instructions and circulars that require a pre-show cause consultation with the Principal Commissioner or Commissioner before issuing a show cause notice.
- Noted that, the CBEC Master Circular No. 1053/02/2017-CX dated March 10, 2017 and CBIC Circular No. 1076/02/2020-Cx dated November 19, 2020 expressly provide that the consultation is not a mere formality, but a binding procedural safeguard to prevent arbitrary and non-transparent show cause actions in high demand cases.
- Observed that, the failure to adhere to this mandatory consultation process renders the consequential show cause notice illegal and liable to be quashed, protecting taxpayers from unauthorized proceedings.
- Held that, quashing the show cause notice for non-compliance with pre-consultation does not bar the department from initiating fresh proceedings with due compliance, and any delay caused by repeated proceedings or judicial intervention will be excluded for the purpose of computing limitation and granted relief to the petitioner by quashing the impugned SCNs on this procedural ground.
Our Comments:
This decision is in line with the Delhi High Court’s approach in the case of Amadeus India Pvt. Ltd. Versus Principal Commissioner [W.P.(C) 914/2019 & CM APPL. 4125/2019 order dated May 8, 2019] held that pre-SCN consultation is mandatory and set aside notices issued in violation. However, the Madras High Court in M/s. Brivas Private Limited Vs Commissioner of GST and Central Excise, Chennai [2022 104 GSTR 296 Mad] and Patna High Court Ramnath Prasad Vs Principal Commissioner of CGST and Central Excise Patna and Anr [2025 144 GSTR 556] have observed the opposite, holding consultation as directory. The Bombay High Court disagrees for three reasons: (1) two consistent prior Madras HC decisions found the requirement mandatory and were not overruled; (2) Supreme Court and High Court binding circular jurisprudence; (3) the specific object of trade facilitation and dispute avoidance underlying the consultation scheme. This is a key decision as to application of procedural fairness and judicious exclusion of period for limitation when notices are re-issued post-court order.
Relevant Extract of the Circulars:
Master Circular No. 1053/02/2017-CS (CBEC), March 10, 2017, Cl. 5.0:
“5.0 Consultation with the noticee before issue of Show Cause Notice: Board has made pre show cause notice consultation by the Principal Commissioner/ Commissioner prior to issue of show cause notice in cases involving demands of duty above Rs. 50 lakhs (except for preventive/ offence related SCN’s) mandatory vide instruction issued from F No. 1080/09/DLA/MISC/15 dated 21st December 2015. Such consultation shall be done by the adjudicating authority with the assessee concerned. This is an important step towards trade facilitation and promoting voluntary compliance and to reduce the necessity of issuing show cause notice.”
Circular No. 1076/02/2020-CX (CBIC), November 19, 2020, Cl. 4:
“Due to the above change in monetary limits of adjudication and to lend clarity on this issue, it is hereby clarified that “Pre show cause notice consultation with assessee, prior to issuance of SCN in case of demands of duty is above Rupees 50 Lakhs (except for preventive/offence related SCN’s), is mandatory and shall be done by the Show Cause Notice issuing authority”
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