CESTAT Kolkata Quashes Rs. 34.63 Lakh Service Tax Demand: Pre-SCN Consultation Held Mandatory

Case Overview

Case Name: SIS Limited Vs Pr. Commissioner of C.G.S.T. and Central Excise (CESTAT Kolkata)
Appeal Number: Service Tax Appeal No. 75555 of 2024
Date of Order: 15/10/2025
Forum: CESTAT Kolkata

Background and Factual Matrix

SIS Limited, a company registered with the Service Tax Department under Registration No. AAECS3538ASD130, was engaged in providing services classified under Security/Detective Agency Service, Manpower Supply Service, Business Support Service, and allied categories. The assessee was regularly discharging its service tax obligations and filing ST-3 Returns in compliance with applicable provisions.

The jurisdictional authorities issued a Show Cause Notice dated 18.10.2019 covering the period from 2014-15 to 2016-17. The SCN was premised on data drawn from the assessee's own ST-3 Returns and CENVAT Credit register. The aggregate demand raised through the SCN stood at Rs. 6,79,14,092/-, broken down as follows:

  • CENVAT Credit disallowance: Rs. 6,64,39,561/- (proposed to be denied and recovered)
  • Short payment of Service Tax: Rs. 29,381/- + Rs. 93,731/- + Rs. 2,928/- = Rs. 1,26,040/-
  • Additional CENVAT Credit recovery relating to services rendered to educational institutions (exempted services), where reversal was not computed as per Rule 6(3A) of CENVAT Credit Rules (CCR), 2004, resulting in short reversal of ineligible credit: Rs. 13,20,704/-

Following the adjudication process, the Principal Commissioner passed Order in Original No. 03/ST/Commissioner/2024 dated 16.01.2024, confirming a demand of Rs. 21,43,026/- + Rs. 13,20,704/- aggregating to Rs. 34,63,730/- along with applicable interest, while simultaneously dropping the remainder of the demand exceeding Rs. 6.45 crores — nearly 95% of the total amount demanded. Notably, the Revenue did not challenge the dropped portion through any appeal.

Being aggrieved by the confirmed portion of Rs. 34,63,730/-, the assessee preferred the present appeal before CESTAT Kolkata.

Core Grounds of Challenge

1. Violation of Mandatory Pre-Show Cause Notice Consultation

The primary ground raised by the assessee's counsel was that the SCN dated 18.10.2019 was fatally flawed due to non-compliance with the Board's mandatory requirement of pre-Show Cause Notice consultation.

The following circulars and instructions were relied upon:

  • Board's Instruction dated 21.12.2015 issued vide F. No. 1080/09/DLA/MISC/15
  • Circular No. 1053/02/2017-CX dated 10.03.2017

Under these instruments, pre-SCN consultation with the Principal Commissioner/Commissioner was made mandatory before issuance of any Show Cause Notice involving demands exceeding Rs. 50 lakhs, with the only carved-out exceptions being preventive or offence-related SCNs.

Since the demand in the present SCN was Rs. 6,79,14,092/- — far above the Rs. 50 lakh threshold — the assessee argued that this mandatory procedural step was an absolute prerequisite that the Revenue entirely bypassed.

2. Subsequent Circular Cannot Operate Retrospectively

The Revenue sought to justify the non-compliance by relying on Circular No. 1079/03/2021-CX dated 11.11.2021, which provided that pre-SCN consultation shall not be mandatory for cases involving:

(a) fraud; or (b) collusion; or (c) wilful mis-statement; or (d) suppression of facts; or (e) contravention of any provision of the Central Excise Act, 1944 or Chapter V of the Finance Act, 1994 or the rules made thereunder with intent to evade payment of duties or taxes