JANUARY 19, 2022

It appears from the materials on record that the Joint Commissioner, CGST and Central Excise, Surat issued a pre-consultation notice dated 22.10.2021 to the writ applicant. This pre-consultation notice was received by the writ applicant by E-mail on 22.10.2021 itself at 6:47 p.m. This is evident from Annexure - C at Page 25. The writ applicant was asked to remain present on 23.10.2021 for the purpose of pre-consultation. The writ applicant was not in a position to respond in a short period of time.

On 24.10.2021 itself, the impugned show cause notice came to be issued.

The question is does the aforesaid make any sense? What is the object of pre-consultation ?

The High Court's attention was drawn to the pronouncement in the case of  Dharamshil Agencies vs. Union of India, - 2021-TIOL-1563-HC-AHM-ST  wherein a Co-ordinate Bench of the same High Court observed that the exercise of pre-consultation should not be a mere eye-wash.

Pre-consultation should be meaningful.

That was an interesting case:

During the course of audit, the officers of the Audit Team raised an objection. Subsequent to the issuance of the audit report, the petitioners had attempted to explain to the officers about the payment of appropriate tax for the transaction in question. However, all of a sudden, the Superintendent of Central Tax Audit, Ahmedabad visited the office of the petitioners and handed over a copy of the letter dated 12.4.2019 at 13.55 hours, calling upon the petitioners to remain present on the same day at 14 hours before his Additional Commissioner. It was stated in the said letter/notice that if the petitioners did not appear for such pre-show- cause notice consultation, it would be presumed that the petitioners did not wish to be consulted before the issuance of show-cause notice. The petitioners, therefore, addressed a letter to the authority requesting for another date for pre-show-cause notice consultation as it was not possible to effectively make any representation on such a short notice. However, the Additional Commissioner issued the show-cause notice on the same day demanding tax to the tune of Rs.1,13,47,313/- along with interest and penalty. The legality and validity of the notice was under challenge in the petition.

The Advocate for the petitioner vehemently submitted that the Board circulars mandate a pre-show cause notice consultation before the issuance of show-cause notice, in order to promote voluntary compliance and to reduce the necessity of issuing show-cause notice. However, an illusory pre-show-cause notice was issued on 12.4.2019, delivering the same to the petitioner at 13.55 hours, calling upon the petitioner to remain present before the respondent No. 2 at 16.00 hours for the pre-show-cause notice consultation. He submitted that the petitioners requested the respondents to provide reasonable opportunity for effective pre-show cause notice consultation as the time granted to the petitioner was too short, the respondent No. 2 issued the show-cause notice on the same day on 12.4.2019. According to the advocate, such a conduct on the part of the respondent authority was not only arbitrary, high-handed and unjust, but in blatant violation of mandatory procedure and pre-condition prescribed by the Board for pre-show-cause notice consultation.

Per contra, the learned Advocate for the respondents submitted that during the course of audit, certain deliberations and discussions had taken place with the petitioner firm to promote voluntary compliance. However, the clarification tendered by the petitioner firm having been found to be unsatisfactory by the audit officers, final audit report was issued on 28.2.2019 towards the non-payment of the service tax. According to him, the respondent authorities had given ample opportunity to the petitioners and had even tried to reduce the need to issue the show-cause notice by adhering to the procedure envisaged in the Circular dated 10.3.2017. In view of the said Circular, the petitioner firm was issued the pre-show-cause notice on 12.4.2019. However, the petitioners sought time with a view to see that the demand made by the respondent authorities gets time-barred, in light of the fact that the returns for the relevant period were filed on 15.4.2014 and the five years for invoking the Section 73(1) of the Finance Act, 1994 would be over on 15.4.2019. According to him, the Circular of the Board cannot be utilized by the petitioner assessee as a medium to assert or claim a right, as the instructions provided in such circulars are merely guidelines set out for the respondent authorities to act accordingly.

The High Court observed,

The short question, therefore, that falls for consideration before the Court is, whether the pre-show-cause notice consultation dated 12.4.2019 calling upon the petitioners at 13.55 hours to remain present before the respondent No. 2 at 16.00 hours on the same day, could be said to be an illusory or an eye-wash notice only with a view to show the compliance of the Circular dated 10.3.2017 issued by the Board ?

The Court is constrained to observe that such an action on the part of the respondent No. 2 in issuing the illusory pre-show-cause notice for consultation only two hours before the hearing is not only arbitrary, but is in utter disregard and in contravention of the very object and purpose of the circular dated 10.3.2017, which mandated such consultation with the assessee as an important step towards trade facilitation, for promoting voluntary compliance and for reducing necessity of issuing show-cause notice.

The action of the respondent authority in not taking timely action after the audit report and in issuing the impugned notice in contravention of the mandatory instructions given by the Board, therefore, is required to be seriously viewed.

The present petition, therefore, is allowed, subject to the payment of cost of Rs.20,000/- to be deposited by the respondent in the Court within eight weeks from today. On such deposit being made, the office shall pay Rs.10,000/- (Rupees ten thousand only) to the petitioners and shall deposit the remaining Rs.10,000/- with the Gujarat State Legal Services Authority.

In Circular No.1079/03/2021-CX, dated 11th November, 2021, the CBIC loftily stated,

As a trade facilitation measure, a concept of pre-show cause notice consultation in Central Excise and Service Tax was introduced vide Board's instruction dated 21.12.2015, issued vide F. No. 1080/09/DLA/MIS/15. Vide the said Instruction, it was clarified that "Pre-show cause notice consultation with the Principal Commissioner and Commissioner is being made mandatory prior to issue of show cause notice (SCN) in the case of demand of duty above Rs.50 Lakhs (except for preventive/offence related SCNs).

In Circular No. 1076/02/2020- CX, dated 19th November 2020, the Board emphatically stated,

It is hereby clarified that "Pre show cause notice consultation with assessee, prior to issuance of SCN in case of demands of duty is above Rupees 50 Lakhs (except for preventive/offence related SCN's), is mandatory and shall be done by the Show Cause Notice issuing authority". (Emphasis not mine; as in the Board Circular)

Blatant disobedience of the Board instructions, is nothing new in the field.

Does it make any sense?

Is it an eye-wash?

Is it illusory?

Until Next Week