Pre-Show Cause Notice Consultation Not An Empty Formality, Mandatory When Demand Is Over ₹50 Lakhs: Bombay High Court
The Bombay High Court has held that pre-show cause notice consultation is not an empty formality; mandatory before the show cause notice (SCN) in demands above Rs. 50 lakhs. The question before Justices M.S. Sonak and Advait M. Sethna was whether a pre-consultation notice would be mandatory before issuing show cause notices where the tax demand exceeds Rs. 50 Lakhs. The bench...
The Bombay High Court has held that pre-show cause notice consultation is not an empty formality; mandatory before the show cause notice (SCN) in demands above Rs. 50 lakhs.
The question before Justices M.S. Sonak and Advait M. Sethna was whether a pre-consultation notice would be mandatory before issuing show cause notices where the tax demand exceeds Rs. 50 Lakhs.
The bench opined that ….The requirement of a pre-consultative process cannot be dismissed as some empty formality. The master circular and the Circular of 19 November 2020 style this requirement as mandatory in cases where the tax demand exceeds Rs 50 lakhs, unless, of course, the case falls in any of the exceptions. Such circulars bind the Department…...
As per the Revenue, issuing a pre-consultation was not a mandatory requirement, and failing to issue such a notice does not make the show cause notices invalid.
The bench noted that Section 73 of the Finance Act, 1994, does not refer to the issue of any pre-consultation notice. However, the Central Board of Excise and Customs, New Delhi (“CBEC”) issued Circular No. 1053/02/2017-Cx- dated 10 March 2017 [Master Circular] consolidating the Circulars issued from time to time regarding show cause notices, adjudication and recovery proceedings.
The CBIC issued yet another Circular No. 1076/02/2020-Cx, dated 19 November 2020, about clarification regarding the holding of pre-show cause notice consultations.
The above two Circulars provide that the issuance of pre-consultation notices to the Assessee prior to the issuance of show cause notices in cases where the demand for duty exceeds Rs. 50 lakhs (except for preventive/offence related show cause notices), are mandatory and shall be done by the show cause notice issuing authorities, observed the bench.
The bench stated that during the pre-consultative process, it is possible that the department convinces the assessee or is itself convinced regarding the necessity or otherwise of raising tax demands or the quantum thereof. Such issues can always be resolved or at least seriously attempted to be resolved during the pre-consultative process.
The bench further opined that suppose a pre-consultation process needs to be initiated. In that case, the time spent on this process should not be counted for the purpose of determining the limitation for issuing a show-cause notice or completing its adjudication.
In view of the above, the bench set aside the impugned show cause notice and directed the revenue to issue fresh show cause notices.
Case Title: Rochem Separation Systems (India) Pvt. Ltd. v. The Union of India
Case Number: WRIT PETITION NO. 822 OF 2021
Counsel for Petitioner/Assessee: Mr. Prithiviraj Choudhary a/w Mr. Ankit Trivedi, Ms. Kausar Jahan Sayed i/b Vashi
Counsel for Respondent/Department: Ms. Maya Majumdar a/w Mr. Saket Ketkar