The Gujarat High court held that the Show Cause Notice (SCN) without Mandatory pre-show cause notice consultation is not valid.
The petitioners, Dharamshala Agencies by way of the present petition, have challenged the legality and validity of the show-cause notice issued by the respondent, the Additional Commissioner of Central Goods and Service Tax, Ahmedabad.
The petitioners have filed the petition not on the merits of the case, but have challenged the procedural infraction and the manner in which the impugned show-cause notice has been issued by the respondent authority. However, in order to understand the basic controversy it would be necessary to narrate the undisputed facts as transpiring from the record.
The petitioner is a partnership firm engaged in the business of purchase and sale of various textile machineries. The petitioner firm was registered under the erstwhile Sales Tax Regime, and now is also holding a valid and subsisting registration under the present GST Regime. The petitioner firm is holding the Service Tax Registration under the category of business auxiliary services and repair and maintenance services.
The learned Advocate Mr.Paritosh Gupta for the petitioners, placing heavy reliance on the Circulars issued by the Central Board of Excise and Customs from time to time and more particularly the Customs’ Circular on the show-cause notices, vehemently submitted that the said 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 delivering the same to the petitioner at 13.55 hours, calling upon the petitioner to remain present before the respondent at 16.00 hours for the pre-show-cause notice consultation.
Advocate Mr.Dhaval Vyas 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 Mr.Vyas, 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.
The division bench of Justice Bela M. Trivedi and Justice A.C.Joshi sets aside the impugned notice on the ground that the petitioners were not granted an adequate opportunity for the consultation prior to the issuance of the said notice. The parties are relegated to the stage prior to the issuance of the impugned show-cause notice.
The court directed the respondent to issue a fresh pre-show-cause notice for consultation in view of the Circular dated 10.3.2017 giving the petitioner a reasonable opportunity of making effective consultation, and the respondent shall issue the show-cause notice only on having been satisfied for issuance of the same. It is clarified that the petitioner shall extend full cooperation to the respondent authority by providing necessary information that may be asked for and shall not raise the issue of limitation in respect of the demand, if made, by the respondent authority, as the action of raising demand was taken by the respondent authority within the prescribed time limit.
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