GST update No 200 on Pre-consultation show cause notice cannot be waived

Show cause notice lays down the foundation of on the basis of which the adjudication proceedings are carried out and disputes are adjudicated. Time and again the Courts are flooded with plethora of cases wherein the orders of lower authorities were set aside on the ground of vaguely issued show cause notices. The intend of the Court behind this action is to ensure that the assessees are not subject to rigors of penalty provisions. Furthermore, the Board has made it mandatory to issue pre-consultation notices to the assessees wherein the amount of demand involved is above Rs. 50 Lakhs. However, it seems that the revenue authorities have filed to adopt this practice. On the similar grounds, the case travelled up to Delhi High Court in the case of M/s Gulati Enterprises V/s Central Board of Indirect Taxes and Customs Ors. The decision imparted in this respect is subject matter of present update.

The petitioner was issued a show cause notice alleging that there was clandestine supply of goods and therefore, tax along with penalty was demanded from the assessee. The Counsel of the petitioner argued that the show cause notice is improper on the grounds of non-issuance of pre-consultation show cause notice as per Section 74 of CGST Act, 2017. It was further argued that after introduction of GST Act, the revenue authorities mandatorily had to issue pre consultation show cause notice. Further, it was contended that on perusal of GST DRC-01A, the revenue authorities had to crystalise the amount of tax and cess component along with the period to which it pertains to and the grounds on the basis of which penalty is fastened. Unfortunately, in the present case no such pre-consultation notice was issued to the assessee.

The Counsel of revenue argued that when the impugned show cause notice was issued, the statutory form i.e. GST-DRC 01A was not available on the portal and therefore, it was not issued to the assessee. Further, it was argued that the authorised signatory of the petitioner gave a voluntary statement before the concerned officer which obviated the need of issuance of pre-consultation show cause notice.

The Court analysed the case and placed referred to the decision passed by Bench of this Court in the case of Back Office IT Solutions Pvt. Ltd. v. Union of India & Ors.- W.P. No. 5766/2019. Further, reference was made to Master Circular of Board dated 10.03.2017 in this regard. The Court held that the requirement of issuance of show cause notice is mandatory and there are no exceptions to the same. Further, it was stated that before amendment, as per Rule 142(1A) of CGST Rules, 2017, the word “Shall” depicting compulsory requirement of issuing pre-consultation show cause notice was replaced with “may” with effect from 15.10.2020. However, it was held that the impact of this amendment shall not apply to present case since the show cause notice was issued prior to 21.05.2020. It was further held that the arguments as laid down by revenue are not appropriate since the revenue authorities should have issued a manual form in case the form was not available on the web portal. Further, it was held that a voluntary statement cannot substitute the statutory notice. Reliance was placed on the decision of another Bench of the Court in the case of Omaxe New Chandigarh Developers Pvt. Ltd. V/s Union of India & Ors. [W.P. No. 12653/2019]. Therefore, it was held that the revenue has grossly erred in performing its functions.

The above decision is a favouring the decision imparted in uniformity with the decision of Hon’ble Gujarat High Court in the case of M/s Dharamshil Agencies V/s Union of India. Time and again the Judiciary has back-to-back quashed various notices on the grounds of improper issuance of notices which demonstrates the fact that there is zero tolerance of non-compliance of instructions issued by department itself. On the Contrary, even if the contention of revenue is accepted regarding aforesaid amendment i.e it is discretionary to issued pre-consultation show cause notice, then also the departmental authorities should interpret the word “may” as “akin to shall” and thereby issue pre-consultation show cause notices to be on a safer side. However, it is quite disheartening that the lower authorities are not discharging their duties appropriately failing which will increases the instances of unnecessary litigations manifolds and further leads to wastage of time of the department and assessees.

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GST update No 200 on Pre-consultation show cause notice cannot be waived

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