Pre-Consultation of SCN Not Mandatory When Returns Not Filed: Delhi HC dismisses Service Tax Challenge [Read Order]

The Patna High Court dismissed a service tax challenge , holding that pre-consultation of Show cause notice (SCN) was not mandatory due to the petitioner’s failure to file returns for the period April 2015 to March 2017.

Shashi Galvanising Private Limited,petitioner-assessee,was registered under the Service Tax provisions of the Finance Act, 1994. It had taken up civil contract work with the State of Bihar in 2010, with agreements signed in 2013. However, the petitioner did not pay service tax for the period from April 2015 to March 2017 and also did not file the required ST-3 returns.

This led to notices being issued by the department in 2019 and 2020. The petitioner filed its reply much later, in October 2023. The department passed a final order in January 2024, confirming a tax demand of ₹2.16 crore along with interest and penalties under the Finance Act, 1994 read with the CGST Act, 2017.

Aggrieved by the order, the petitioner moved the High Court under Article 226 of the Constitution.

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The petitioner counsel said the petitioner did not file an appeal because the department did not follow the required pre-consultation process. They relied on a court decision in Amadeus India Pvt. Ltd., which is still pending in the Supreme Court.

The petitioner argued that the road construction work was exempt from service tax under a government notification, so they did not have to pay tax or file returns. They also said the final order passed in 2024 was too late since the notice was given in 2020.

Finally, the counsel said there was no fraud, and since the department skipped pre-consultation, the whole case should be considered invalid.

The division bench of Justice P.B.Bajanthri and Justice S.B.PD.Singh heard counsel for both parties. The main issues were whether the respondent’s decision dated 04.01.2024 was time-barred, whether pre-consultation was mandatory, and if the petitioner had alternative remedies.

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It was undisputed that the petitioner, a registered service tax payer engaged in civil construction, had not filed the required ST-3 returns for April 2015 to March 2017. Respondents sent several notices between 2019 and 2020, but the petitioner responded only in October 2023. The final order was passed in January 2024, within three months of the petitioner’s response. Therefore, the limitation did not apply.

The court noted that pre-consultation, as per the Master Circular dated 10.03.2017, was not mandatory in this case because the petitioner had failed to file returns and did not cooperate by ignoring multiple notices. Pre-consultation only applies when returns are filed under Section 70 of the Finance Act.

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The petitioner argued that alternative remedies were not exhausted, citing violation of the Master Circular. The court rejected this, saying the petitioner had not shown reasons to bypass the remedy of appeal under Section 86 of the Finance Act.

The court also stated that questions of fraud or suppression of facts must be examined by the concerned authorities, not under Article 226.

Relying on Constitution Bench decisions, the court affirmed that pre-show cause notice consultation is required only for demands above Rs. 50 lakhs, except in preventive or offence cases. Since the petitioner did not cooperate, the court found no grounds to interfere with the impugned order.

The petition was dismissed. The petitioner was allowed to appeal before the Appellate Tribunal, and the tribunal was requested to condone any delay caused by this litigation.

To Read the full text of the Order CLICK HERE

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