"Talk Before You Tax": Bombay HC Makes Pre-SCN Consultation Non-Negotiable for Demands Above Rs. 50 Lakh

If the Department wants to raise a big service-tax demand, it must knock before it enters. In Rochem Separation Systems (India) Pvt. Ltd. v. Union of India & Ors. (2025(09)LCX0323), the Bombay High Court has held that a pre-show cause notice (pre-SCN) consultation is mandatory for demands over Rs. 50 lakh (barring preventive/offence cases). Show cause notices (SCNs) issued without first conducting this consultation are illegal and liable to be quashed-though Revenue can start afresh after following the procedure, and the time spent in court/consultation will be excluded for limitation.)

Why this ruling matters

The circular framework the Court enforced

Two central instructions were pivotal:

1. CBEC Master Circular No. 1053/02/2017-CX (10 March 2017) – Clause 5.0 makes pre-SCN consultation mandatory for duty/service-tax demands above Rs. 50 lakh, except for preventive/offence-related matters. It emphasises consultation as "an important step" for trade facilitation and reducing unnecessary SCNs.

2. CBIC Circular No. 1076/02/2020-CX (19 November 2020) – Reiterates and clarifies the mandate: pre-SCN consultation is mandatory for demands above Rs. 50 lakh (again, excluding preventive/offence cases), and must be done by the SCN-issuing authority.

A later clarification also underscores that the exclusion for "preventive/offence" is case-specific, not formation-specific-i.e., you cannot skip consultation merely because DGGI is the issuing formation.

What happened in Rochem

Facts in brief. Rochem challenged service-tax SCNs (each exceeding Rs. 50 lakh) issued without any pre-SCN consultation, arguing that Board circulars mandated such consultation and are binding on departmental officers. The Department defended the omission by calling the circulars merely directory and invoked contrary High Court views. )

Core issue. Is pre-SCN consultation a condition precedent for service-tax SCNs above Rs. 50 lakh (non-offence cases), and what follows if the Department skips it?

Held. The Bombay High Court answered yes: for such high-value demands, pre-SCN consultation is compulsory. Non-compliance vitiates the SCN, which stands quashed. However, fresh proceedings may be initiated after due process, with limitation excluded for the pendency before the Court/consultation period.)

The reasoning-three pillars

1) Circulars bind the Department

The Court leaned on long-settled Supreme Court jurisprudence: Board circulars are binding on revenue authorities, even if courts/assessees are not bound. Consequently, officers must comply with the pre-SCN consultation mandate.

The Constitution Bench in CCE v. Ratan Melting & Wire Industries clarified that departmental circulars, while not binding on courts, do bind revenue authorities unless contrary to statute or judicial pronouncement.

2) The scheme is designed to prevent arbitrary SCNs

Both the 2017 Master Circular and 2020 Circular cast consultation as a trade-facilitation and compliance measure, meant to resolve disputes early and avoid unnecessary litigation. Treating it as optional would defeat its purpose.

3) Exceptions exist-but are narrow

Skipping consultation is justified only for "preventive/offence" or intelligence-led cases where immediate action is necessary. And that exception is case-specific; it cannot be claimed by an entire wing or formation as a matter of course.

How Rochem navigates conflicting High Court views

You will find divergent jurisprudence across High Courts:

The Bombay High Court disagreed with the directory approach and pointed out, among other things, (i) earlier Madras decisions that had treated consultation as mandatory; (ii) binding-circular jurisprudence from the Supreme Court; and (iii) the specific policy objective behind the consultation scheme (trade facilitation and dispute avoidance).)

The remedy crafted by the Court

1. SCNs quashed for non-compliance with mandatory pre-SCN consultation.

2. Liberty to re-issue fresh SCNs after a proper consultation.

3. Exclusion of time: Any delay on account of the writ and the consultation process is excluded for limitation-a practical balance that preserves both taxpayer rights and revenue protection. )

Practical implications-what taxpayers and officers should do now

For taxpayers

Tip: Keep a chronology: date of any investigative communication, pre-SCN notice (if any), replies, meetings, and the SCN. The clearer your paper trail, the stronger your procedural challenge.

For departmental officers

What counts as "preventive/offence" (and what doesn't)

The exception has a purpose: where revenue protection demands swift, intelligence-led action (e.g., imminent risk of dissipation of assets), consultation can be skipped. But the label is not magic; the facts must justify the skip, case by case. That is exactly why the 2021 clarification disallowed formation-wide exemptions.

Will this spill over into GST?

Formally, the 2017 and 2020 circulars relate to central excise/service tax (legacy). There is no identically worded, pan-India GST circular that compels pre-SCN consultation for every high-value case. However, courts (and the Board's broader policy direction) increasingly favour early, consultative resolution to reduce litigation. Rochem strengthens the argument that where the administration itself frames a consultative safeguard, officers must respect it-an approach that could influence GST-era practices too, even if the mandate differs in text. (This is a reasoned inference from the judgment's rationale and the circulars' trade-facilitation objective.) )

Quick checklist: Was your pre-SCN consultation valid?

Drafting pointers for your pre-SCN representation

1. Lead with jurisdictional objection: Cite the 2017 Master Circular and 2020 Circular, the case-specific nature of exceptions, and Rochem's mandate. Ask for closure if the officer cannot justify the exception.

2. Reconcile numbers: Attach annexures (3-way match between returns, books, and statements).

3. Tackle issues head-on: Classification/rate/valuation/credit eligibility-give the officer an off-ramp from issuing an SCN.

4. Lock the timeline: Record all dates to protect yourself on limitation arguments later, if needed. )

A note on binding circulars: the legal spine

For decades, the Supreme Court has maintained that Board circulars bind the Department

(even if they do not bind courts/assessees). The principle, reiterated in decisions like Paper Products and Ratan Melting, promotes administrative consistency and discipline. Rochem slots neatly into this line by insisting that officers cannot shrug off a circular-mandated consultation when the factual pre-conditions are met.

The road ahead

Bottom line (for your board note)

In short: "Talk before you tax." That is now not merely good administration-it is compulsory procedure for high-value legacy demands, thanks to Rochem. )

Key references

Disclaimer: The information given in this article is solely for purpose of understanding the law. It is completely based on the interpretation of the author and cannot be constituted as a legal advise, the author of this article and Lawcrux team is not responsible for any legal issues if arises on the basis of the interpretation given above.