In the case of Gulati Enterprises v. Central Board of Indirect Taxes and Customs & Ors. W.P.(C) 5407/2020 dated 18.05.2022, the High Court of Delhi held that the Pre-Show Cause Consultation Notice should be issued mandatorily, and the requirement to issue a Pre-Show Cause Consultation Notice cannot be waived off merely on the basis of a voluntary statement given by the Assessee.
FACTS
The Central Board of Indirect Taxes and Customs (hereinafter referred to as the “Respondent” or “CBIC”) issued a Show Cause Notice dated 21.05.2020 to M/s Gulati Enterprises (hereinafter referred to as the “Petitioner”) along with several other entities/people.
The Show Cause Notice was issued under the proviso to Section 74(1) of the Central Goods and Services Act, 2017 (hereinafter referred to as the “CGST Act”) for the collection and recovery of Integrated Goods and Services Tax (hereinafter referred to as “IGST”), and under Section 122(1) of the CGST Act read with relevant provisions of the IGST Act, 2017 and the Haryana/the Delhi State Goods and Services Act, 2017 (hereinafter referred to as “SGST Act”).
The Petitioner challenged the said Show Cause Notice on the ground that the mandatory requirement of Pre-Show Cause Consultation Notice as stipulated under Rule 142 (1A) of the Central Goods and Service Tax Rules, 2017 (hereinafter referred to as the “CGST Rules”) was not followed by the Respondent.
ISSUE BEFORE THE DELHI HIGH COURT
Whether it is mandatory to issue the Pre-Show Cause Consultation Notice under Rule 142 (1A) of the CGST Rules prior to the issuance of the Show Cause Notice under Section 74 of the CGST Act?
CONTENTIONS OF THE PARTIES
The Petitioner contended that the mandatory requirement of Pre-Show Cause Consultation Notice, as provided in Rule 142(1A) of the CGST Rules, must be read in conjunction with Section 74 of the CGST Act.
The Petitioner submitted that after the introduction of the GST regime post 01.07.2017, there was no scope for the Respondent/Revenue to avoid the requirement of a Pre-Show Cause Consultation Notice.
The Petitioner relied on the statutory form of GST DRC-01A and argued that from a brief perusal of the said form, the Respondent/Revenue was required to not only crystalize the tax and cess components, but also the period for which it was claimed.
The Petitioner submitted that as per form GST DRC-01A, the Respondent was further required to “furnish the grounds” and “quantification” of the goods/services on which tax and cess are claimed.
The Respondent contended that the statutory form of GST DRC-01A was not activated on the website portal at the time of the issuance of the impugned Show Cause Notice, and hence, the Pre-Show Cause Consultation Notice could not be issued to the Petitioner.
The Respondent submitted that everything to be contained within the Pre-Show Cause Consultation Notice was captured in the voluntary statement given by the authorized signatory of the Petitioner’s concern. Thus, the need to issue the Pre-Show Cause Consultation Notice was obviated.
DECISION AND FINDINGS
The Delhi High Court observed that issue of the mandatory requirement of Pre-Show Cause Consultation Notice was no longer res Integra, as it was decided in the case of Back Office IT Solutions Pvt. Ltd. v. Union of India & Ors. 2021 SCC OnLine Del2742 (hereinafter referred to as “the Back Office case”). In the Back Office case, the Delhi High Court held that the issuance of a Pre-Show Cause Consultation Notice is mandatory in accordance with the Master Circular dated 10.03.2017 and Instruction F. No. 1080/09/DLA/MISC/15, dated 21.12.2015, issued by CBIC.
The High Court noted that Rule 142(1A) of the CGST Rules was amended on 15.10.2020 in as much as the word ‘shall’ was replaced with ‘may’. However, the said amendment was not relevant to the present case as the impugned Show Cause Notice was issued prior to 15.10.2020.
Thus, the High Court held that the Pre-Show Cause Notice Consultation under the unamended Rule 142(1A) of the CGST Rules was mandatory for the issuance of Show Cause Notice prior to 15.10.2020.
The High Court further stated that if the statutory form for Pre-Show Cause Consultation Notice was not activated on the web portal maintained by the Respondent/Revenue, the Respondent could have attempted to serve the same statutory form on the Petitioner through manual mode.
With regards to the Respondent’s contention of voluntary statements made by the Petitioner’s authorized signatory satisfied the requirement of issuing a Pre-Show Cause Consultation Notice, the High Court held that the same was untenable, as the Delhi High Court had previously held in Omaxe New Chandigarh Developers Pvt. Ltd. v. Union of India & Ors. W.P.(C) 12653/2019 that a voluntary statement cannot constitute Pre-Show Cause Consultation.
The High Court finally held that a voluntary statement cannot substitute a statutory notice mandated under Rule 142(1A) of the CGST Rules, and set aside the impugned Show Cause Notice.
The High Court further noted that the Respondent is not prevented from issuing the Pre-Show Cause Consultation Notice and that the Respondent is at liberty to take the next steps in the matter once the said Notice is issued.
AMLEGALS REMARKS
The Indirect Tax Regime of India stipulates the requirement of issuance of a Show Cause Notice by the Revenue prior to raising any demand of tax from an Assessee. Pre-Show Cause Notice Consultation is a mechanism to conduct an open interaction between the Revenue and the Assessee prior to issuing the Show Cause Notice, to reduce the burden of unnecessary litigation and to enable the early resolution of such demands and/or disputes arising thereof.
The CBIC, through its Master Circular No. 1053/2/2017-CX dated 10.03.2017, made the conduct of Pre-Show Cause Notice Consultation mandatory for all demands of Rs. 50 Lakhs or more. Under the CGST Act, a Show Cause Notice is issued in accordance with Section 73(1) or 74(1) of the CGST Act, and Rule 142(1A) of the CGST Rules provides for the issuance of a Pre-Show Cause Consultation Notice.
Rule 142(1A) of the CGST Rules was introduced vide Notification No. 49/2019-CT dated 09.10.2019, which requires the Proper Officer to communicate to the person concerned, the details of any tax, interest, and penalty as ascertained by the said officer in Part-A of Form GST DRC-01A.
Thus, the mandate for issuance of Pre-Show Cause Consultation Notice was made expressly clear from Rule 142(1A) of the CGST Rules. However, in the present case, the Revenue has failed to issue the Pre-Show Cause Consultation Notice and straight away issued the Show Cause Notice without complying with the requirement under Rule 142(1A) of the CGST Rules or the CBIC Circulars in this regard.
The High Court of Delhi held that the Revenue is required to issue a Pre-Show Cause Consultation Notice if the said Show Cause Notice is issued prior to 15.10.2020.
The High Court relied on the Supreme Court’s decision in the Back Office case and noted that the Revenue cannot raise demands directly through Show Cause Notice prior to the issuance of Pre-Show Cause Consultation Notice, as the same would tantamount to violation of principles of natural justice.
– Team AMLEGALS, assisted by Priyanshi Jain (Intern)
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