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Issues: (i) Whether the impugned show cause notice was vitiated for want of mandatory pre show cause notice consultation before its issuance. (ii) Whether the show cause notice was unsustainable for failure to consider the assessee's reply to the audit objections and to afford a personal hearing.
Issue (i): Whether the impugned show cause notice was vitiated for want of mandatory pre show cause notice consultation before its issuance.
Analysis: The governing instructions issued by the Board required pre show cause notice consultation with the Principal Commissioner or Commissioner in cases involving duty demands above the prescribed monetary threshold, except in preventive or offence related matters. The record showed that the impugned notice was issued without following that mandatory consultation process, even though the Board's instructions treated the step as compulsory. Non adherence to that procedural safeguard went to the validity of the notice.
Conclusion: The show cause notice was liable to be interfered with for non compliance with the mandatory pre notice consultation requirement, in favour of the assessee.
Issue (ii): Whether the show cause notice was unsustainable for failure to consider the assessee's reply to the audit objections and to afford a personal hearing.
Analysis: The assessee had submitted a reply to the audit objections and had specifically sought a personal hearing. Since the notice was founded on the audit objections, the reply could not be ignored and ought to have been dealt with in the notice itself or considered before proceeding further. The absence of such consideration, coupled with denial of an effective opportunity of hearing, rendered the impugned action procedurally unfair.
Conclusion: The notice was set aside because the reply to the audit objections was not considered and an opportunity of personal hearing was not afforded, in favour of the assessee.
Final Conclusion: The impugned show cause notice was quashed and the matter was sent back for fresh consideration after complying with the prescribed consultation process and giving an effective opportunity of hearing.
Ratio Decidendi: Where binding departmental instructions require prior consultation before issuance of a show cause notice, and the assessee's reply to audit objections is ignored without an effective hearing, the notice is liable to be set aside on grounds of procedural illegality and breach of natural justice.
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