Failure to conduct mandatory pre-show cause notice consultation for tax demands above ₹50 lakhs, as prescribed by CBIC circulars, renders the show cause notice legally unsustainable, unless the case falls under specific exemptions like fraud or suppression.

Order(Oral)

Reportable

Per: Arun Monga, J.

1. The present Civil Writ Petition has been filed assailing the show-cause notice dated 22.10.2021 issued by Additional Director General, Directorate General Of Goods & Services Tax Intelligence, Jaipur Zonal Unit (Respondent no. 2), whereby it was informed that during the period from April, 2016 to June, 2017, petitioner- assessee short paid Service tax amounting to Rs. 5,56,60,637/-.

2. Brief facts of the case as stated in the petition are that the petitioner is India’s largest and the world’s second-largest zinc-lead miner, operating lead-zinc mines, smelters, sulphuric acid plants, and captive power plants. The run-of-the-mine ore is crushed and processed to produce zinc and lead concentrates, along with tailings. The Petitioner undertakes mining and manufacture of such concentrates under Chapter 26 of the Central Excise Tariff Act, 1985, from mines at Mochia, Balaria, Baroi, and Zawarmala.

2.1 The concentrates contain impurities, which are removed during smelting outside the mining lease area. The Petitioner holds the requisite Central Excise and Service Tax registrations and has regularly filed returns as per law. It has been paying Service Tax on mining royalty to the State of Rajasthan under Section 68(2) of the Act, read with the Service Tax Rules and relevant notifications, under the reverse charge mechanism.

2.2 Respondent No. 2 issued an impugned show cause notice dated 22.10.2021 proposing a Service Tax demand of Rs. 5,56,60,637/- for April 2016 to June 2017, alleging violation of Sections 67, 68, and 70 of the Act read with Rules 6 and 7 of the Service Tax Rules, on the ground of suppression of the value of mining royalty on zinc, lead, and silver.

2.3 Hence, the present writ petition.

3. Learned counsel for the petitioner submits that the impugned Show Cause Notice has not been issued in accordance with the procedure prescribed under law and is therefore liable to be quashed. It is contended that vide Departmental Instructions dated 21.12.2015, pre-show cause notice consultation was made mandatory in cases involving tax demands of ₹50 lakhs and above, with the object of promoting voluntary compliance and avoiding unnecessary litigation. The said requirement was subsequently reiterated through Circular dated 10.03.2017 and further clarified vide Circular dated 11.11.2021.

3.1 It is further argued that despite the mandatory nature of the aforesaid circulars, no pre-SCN consultation was afforded to the petitioner prior to issuance of the impugned notice. Learned counsel submits that it is well settled that departmental circulars are binding upon the authorities, and reliance in this regard is placed upon the judgment of the Gujarat High Court in L & T Hydrocarbons Engineering Ltd. v. Union of India, C/SCA/11308/2019 (decided on 03.02.2022), wherein it was held that pre-show cause notice consultation is mandatory even in cases involving DGGI officers, particularly in light of the clarification issued vide Circular dated 11.11.2021.

3.2 Learned counsel for the petitioner contends that the demand raised in the Show Cause Notice is founded on hypothetical and unascertained figures of alleged short-paid royalty, which has not been determined by the competent authority. It is thus argued that Respondent No. 2 lack