Voluntary statement cannot substitute a statutory requirement of pre- show cause notice consultation under Rule 142(1A) of the CGST Rules, 2017
Petitioner’s Submissions: –
- It was submitted on the behalf of the petitioners that mandatory requirement of pre-show cause notice consultation as provided in Rule 142(1A) of the CGST rules, 2017 during the relevant period, has not been adhered to by the respondents.
- It was submitted that requirement of pre-show cause notice consultation has to be read with Section 74 of the Act and after the introduction of GST on 01.07.2017, the respondents/revenue cannot move away from the requirement of pre-show cause notice consultation.
- That referring to a statutory form GST DRC-01A, it was contended that perusal of the form shows that the revenue was required to not only mention the tax and cess components, but also the period for which it is claimed. Further the respondents/revenue was also required to ‘furnish the grounds and the quantification of goods/services, on the basis of which demand of tax and cess has been proposed.
Respondents Submissions: –
- It was submitted on the behalf of the respondents/revenue that at the time of issuance of show cause notice i.e., 21.05.2020, the said statutory form was not activated on the web portal and for the said reason pre-show cause notice consultation could not be issued to the petitioner.
- It was further submitted that the authorized person of the petitioner has already given a voluntary statement before the concerned officer, therefore, there is no need for issuance of a pre-show cause notice consultation.
- The Hon’ble Court after considering the submissions from the both sides and facts of the case, it was found that similar issue has been dealt with by this Court in the matter of Back Office IT Solutions Pvt. Ltd. v. Union of India & Ors. [2021 SCC OnLine Del 2742] wherein, it was held ‘that requirement of pre-show cause notice consultation as provided in paragraph 5 of the master circular dated 10.03.2017 was mandatory and was also in line with earlier instructions dated 21.12.2015.’
- The Hon’ble Court taking note of the rule 142(1A) (unamended) which states ‘The proper officer shall, before service of notice to the person chargeable with tax, interest and penalty, under subsection (1) of Section 73 or sub-section (1) of Section 74, as the case may be, shall communicate the details of any tax, interest and penalty as ascertained by the said officer, in Part A of FORM GST DRC-01A.’, found that ‘after the issuance of the show cause notice, Rule 142 (1A) was amended with effect from 15.10.2020 and the word ‘shall’ was replaced with word ‘may’.
- The Hon’ble Court considering the fact that the said amendment was after the issuance of impugned show cause notice dated 21.05.2020, held that pre-show cause notice consultation was mandatory in the unamended Rule 142(1A).
- Thereafter, the Hon’ble Court considering the argument on the behalf of the respondents that ‘pre-show cause notice consultation could not be issued as the statutory form was not activated on the portal’ found that it has been rightly contended on the behalf of the Petitioner that ‘the revenue could have made the attempt to serve the statutory form manually to the Petitioner.’
- The Hon’ble Court further considering the other argument advanced on the behalf of the respondents that ‘recording the voluntary statement of the authorized signatory would satisfy the requirement of Pre-show cause notice consultation’, found that the said argument is untenable.
- Further the said argument (other argument) was rejected by this court in Omaxe New Chandigarh Developers Pvt. Ltd. v. Union of India & Ors. [W.P.(C.) 12653/2019] and it was held that ‘We are of the view that “voluntary statements” recorded before the Senior Intelligence Officer cannot constitute pre-show cause notice consultation as envisaged in the paragraph 5 of the 2017 Master Circular. Consultation entails discussion and deliberation. There is back and forth between parties concerned with the consultative process, leading to, metaphorically speaking, often, separation of wheat from the chaff’
- Lastly, the Hon’ble Court taking reference of the said decision in the matter of Omaxe New Chandigarh Developers Pvt. Ltd., held that a voluntary statement cannot substitute a statutory notice, which is contemplated under Rule 142(1A) of the CGST Rules, 2017.
The Hon’ble Court with the above findings quashed the impugned show cause notice dated 21.05.2020 and allowed the Writ petition, with a liberty to the respondents/revenue to take next steps in the matter after issuance of pre-show cause notice consultation in accordance with law.