SCN cannot be issued without considering the reply to pre-consultation notice

The Hon’ble Bombay High Court in the case of FSM EDUCATION PVT. LTD. VERSUS UNION OF INDIA & ORS. - 2025 (1) TMI 1143 - BOMBAY HIGH COURT held that no adjudication orders were to be passed where a pre-consultation notice is issued to an Assessee and Assessee had responded to same. Nevertheless, a subsequent Show Cause Notice (“SCN”) was issued to Assessee, while department could adjudicate said SCN.

Facts:

M/s FSM Education Pvt Ltd (“the Petitioner”)  were issued a pre-consultation notice in FORM GST DRC-01A on July 11, 2024. The Petitioner was called upon to file a reply by July 22, 2024.  Since the pre-consultation notice referred to a calculation sheet which was not annexed to the said notice, the Petitioner sought a copy of the same via e-mail dated July 13, 2024. Thereafter, the Revenue Authority (“the Respondent”) forwarded the sheet to the Petitioner on July 19, 2024 after receipt of which the Petitioner sought 10 days’ time to reply to the pre- consultation notice. However, the Respondent did not reply to this mail. Accordingly, the Petitioner e-mailed its reply on July 29, 2024 i.e. the 10^th day and furnished hard copy to the Respondent on July 30, 2024. Despite receipt of the reply, the Respondent issued a SCN dated July 30, 2024 (“the Impugned SCN”) to the Petitioner. The Petitioner contended that when the reply to the pre- consultation notice was already with the Respondent, then the SCN should not have been issued without taking into consideration their reply.

Aggrieved by the issuance of the SCN without considering the reply filed by the Petitioner, the present writ petition was filed.

Issue:

Whether SCN can be issued without considering the reply to pre-consultation notice?

Held:

The Hon’ble Andhra Pradesh High Court in FSM EDUCATION PVT. LTD. VERSUS UNION OF INDIA & ORS. - 2025 (1) TMI 1143 - BOMBAY HIGH COURTheld as under:

• Directed that, though hearing on the Impugned SCN can proceed, the Respondent shall not pass any adjudication order on the Impugned SCN until further orders.

Our Comments:

The Central Board of Indirect Taxes and Customs (“the CBIC”) introduced the concept of ‘pre-consultation notice’ through its Instruction No. 1080/09/DLA/MIS/15 dated December 21, 2015. This made ‘Pre-notice Consultation’ in mandatory in all cases involving a demand of Rs. 50 lakhs or more, excluding preventive/offence-related SCN. Subsequently, CBIC reiterated this mandate through Master Circular No. 1053/2/2017-CX dated March 10, 2017.

Further, under Notification No. 49/2019-CT dated October 09, 2019, a sub-rule (1A) was added to Rule 142 of the CGST Rules. This rule required the proper officer, before issuing a show cause notice under Section 73(1) or Section 74(1) of the Act, to communicate the details of any tax, interest, and penalty determined by the officer in Part-A of Form GST DRC-01A. However, with CBIC Notification No. 79/2020-CT dated November 15, 2020, the word 'shall' be replaced with 'may,' thus making the pre-consultation process discretionary at the officer's discretion.

Additionally, Circular No. 1076/02/2020-CX dated 19.11.2020, clarified that 'Pre-show cause notice consultation with assessee, in cases where the duty demand exceeds Rs. 50 lakhs (except for preventive/offence-related SCNs), is mandatory. Circular No. 1079/03/2021-CX, issued on November 11, 2021, further clarified that the exclusion from pre-consultation notice is case-specific, not formation-specific. The Circular reiterated that pre-consultation notice is not mandatory for cases falling under the Central Excise Act, 1944 or Chapter V of the Finance Act, 1994, in cases of duties or taxes that were not levied or paid, or erroneously refunded due to:

 of

• fraud/ collusion/ wilful mis-statement/ suppression of facts, or
• contravention of the Central Excise Act, 1944 or Chapter V of the Finance Act, 1994 or the rules made there under with the intent to evade payment of duties or taxes.

In the case of M/S KRISHANGI CONSTRUCTION PVT. LTD. VERSUS THE STATE OF BIHAR THROUGH THE CHIEF SECRETARY, THE STATE OF BIHAR THROUGH THE COMMISSIONER-CUM-PRINCIPAL SECRETARY, THE SECRETARY, THE COMMISSIONER-CUM-PRINCIPAL SECRETARY, THE COMMISSIONER, CGST AND CENTRAL EXCISE, THE JOINT COMMISSIONER, THE PRINCIPAL COMMISSIONER PATNA - 2024 (1) TMI 1351 - PATNA HIGH COURT, the Patna High Court set aside the SCN, not on merits, but only on no proper opportunity having been given to the petitioner for reply and consultation to the pre-consultation show-cause notice issued by the authorities. The petitioner was also directed to file a detailed reply to the pre consultation notice within a period of three weeks and also to appear before the authority for hearing as and when fixed by the Authority either on virtual mode or on the physical mode as requested by the Petitioner.  The Patna High Court reiterated its stance and held in the case of RAMNATH PRASAD VERSUS PRINCIPAL COMMISSIONER OF CGST AND CENTRAL EXCISE PATNA, ADDITIONAL COMMISSIONER, CGST AND CX, PATNA-II. - 2025 (2) TMI 301 - PATNA HIGH COURT, that as per the Circulars issued by the CBIC, a pre-show cause notice consultation would be mandatory in certain cases except for the cases booked under fraud, collusion, wilful mis-statement, suppression of facts, evasion of tax etc.

In light of the above-mentioned legal provisions and precedents, the order of the Bombay High Court that the SCN can only be adjudicated and no final order can be passed until further orders of the Court as the Assessee’s reply to the pre-consultation notice was not considered is in right direction and reinforces the significance of issuing pre-consultation notices before issuing show-cause notices in such matters.

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