SHEESHA SKY LOUNGE HOSPITALITY AND SERVICES PVT LTD. v. UNION OF INDIA (THROUGH CHAIRMAN C.B.I.C.) AND ANR.
Mandatory Requirement of Pre-Show Cause Notice Consultation for Tax Demands Exceeding Fifty Lakhs and the Binding Nature of Board Circulars on Revenue Officers.
Court: Bombay High Court
Citation: 2026:BHC-OS:6749-DB
Decision Date: 12-03-2026
List of Laws
Article 226 of the Constitution of India; Section 37B of the Central Excise Act, 1944; Section 37C of the Central Excise Act, 1944; Section 174 of the Central Goods and Services Tax Act, 2017; Section 83 of the Central Goods and Services Tax Act, 2017; CBEC Circular No. 1053/2/2017-CX; CBEC Circular No. 1076/02/2020-CX; Finance Act, 1994 (Service Tax)
- Facts: The petitioner, M/s. Sheesha Sky Lounge Hospitality and Services Pvt. Ltd., operates non-air-conditioned rooftop restaurants. Under relevant notifications and a CBEC circular from 2013, such restaurants were exempt from service tax. However, on 29 December 2020, the petitioner received an e-mail inquiry regarding service tax for the period October 2014 to June 2017. The very next day, on 30 December 2020, the Revenue issued a show cause notice (SCN) demanding service tax of Rs. 1,26,03,575/- plus interest and penalties, without conducting a pre-show cause notice consultation.
- Procedural Posture: the petitioner filed a Writ Petition under Article 226 of the Constitution of India before the Bombay High Court seeking to quash the impugned show cause notice.
- Issue: Whether the issuance of a show cause notice involving a demand above Rs. 50 lakhs, without following the mandatory pre-show cause notice consultation prescribed by CBEC Circulars and Section 37B of the Central Excise Act, 1944, is legally sustainable?
- Holding: No, the show cause notice is not sustainable and must be quashed for failing to comply with mandatory pre-consultation requirements.
- Reasoning: The Court reasoned that Section 37B of the Central Excise Act (applicable via Section 83 of the CGST Act) makes Board instructions binding on departmental officers. CBEC Circulars dated 10 March 2017 and 19 November 2020 explicitly mandate a "pre-show cause notice consultation" for demands exceeding Rs. 50 lakhs to promote voluntary compliance and reduce litigation. The Court rejected the Revenue's argument that prior summons or informal telephonic contact sufficed as consultation, noting that such informal actions "militate against the mandatory requirements" stipulated in the circulars. Following the precedent in Rochem Separation Systems (India) Pvt. Ltd., the Court held that such consultation is an essential prerequisite and its omission renders the SCN illegal.
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