Show cause notices for service tax demands over Rs.50 lakhs require mandatory pre-consultation per binding CBEC circulars under Sections 37B-37C; summons or inquiries insufficient substitute.

JUDGMENT :

G.S. Kulkarni, J.

1. Rule. Rule made returnable forthwith. With the consent of the parties, taken up for final hearing.

2. A short question which raises for consideration in this petition under Article 226 of the Constitution of India is “as to 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 issued by the Government of India, Ministry of Finance (Department of Revenue), Central Board of Excise & Customs, New Delhi, (CBEC) and subsequent Circular No.1076/02/2020-Cx dated 19 November 2020 stipulating issuance of a notice in regard to a pre-show cause consultation.

3. The facts lie in a narrow compass:- The petitioner is a company, inter alia, engaged in running two non-air-conditioned rooftop restaurants at Andheri and Lower Parel in Mumbai. It is the petitioner’s case that on 01 July 2012, the Government granted exemption to restaurants having air-conditioning and a licence to serve liquor vide Notification No.25/2012-ST (at serial no.19). Thereafter, by a further notification dated 01 March 2013 bearing No.03/2013- ST, the earlier Notification No.25/2012-ST (supra) was amended and the condition regarding licence to serve liquor was omitted. It is the petitioner’s contention that indisputedly the petitioner’s restaurants do not have air-conditioning or central heating during any period of the year.

4. It is the petitioner’s case that there was a clarificatory Circular No.173/8/2013-ST dated 07 October 2013 issued by the CBEC wherein it was clarified that services provided by non-air-conditioned or non-centrally air-heated restaurants are exempt from service tax.

5. It is on such backdrop, the petitioner contends that on 29 December 2020, the petitioner’s Chartered Accountant received an e-mail from respondent No.2 with the subject ‘Service Tax inquiry in respect of income declared in ITR/TDS vis-a-vis Taxable Service Value and short payment of Service Tax for the period October 2014 to June 2017’, calling upon the petitioner to submit certain information within three days. It is stated that immediately on the next day, the impugned show cause notice dated 30 December 2020 was issued by respondent no.2 demanding service tax of Rs.1,26,03,575/- along with a proposal to recover interest and impose penalty. It is on such backdrop, the present petition has been filed.

6. Mr. Raichandani, learned counsel for the petitioner, at the outset would submit that the impugned action on the part of respondent no.2 in issuing the show cause notice is illegal, as it clearly breaches the mandate of Section 37-C of the Central Excise Act, 1944, The reason being that it is evident from the show cause notice that the provisions invoked are Section 73/72 of the Finance Act, 1994, as made applicable in terms of Section 174 of the Central Goods and Services Tax Act, 2017 (CGST Act). It is Mr. Raichandani’s contention that apart from the breach of the provisions of the Central Excise Act, the impugned action is also contrary to the circulars dated 10 March 2017 and 19 November 2020 issued by the CBEC. He has drawn our attention to the relevant clauses of the said circulars, and more importantly paragraph 5 of the circular dated 10 March 2017, which reads thus:-

“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