Show-cause notice invalidated for lack of consultation, fresh notice ordered. Cost split between parties.

The court set aside the show-cause notice dated 12.4.2019 due to inadequate consultation opportunity, directing issuance of a fresh notice in compliance with Circular dated 10.3.2017. The respondent was ordered to pay a cost of Rs. 20,000 within eight weeks, split between the petitioners and Gujarat State Legal Services Authority.

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Issues Involved:
1. Legality and validity of the show-cause notice dated 12.4.2019.
2. Procedural infraction and manner of issuance of the show-cause notice.
3. Compliance with the mandatory pre-show-cause notice consultation as per the Circular dated 10.3.2017.
4. Adequacy of the opportunity provided for pre-show-cause notice consultation.
5. Timeliness of the issuance of the show-cause notice in relation to the statutory period.

Detailed Analysis:

1. Legality and Validity of the Show-Cause Notice:
The petitioners challenged the legality and validity of the show-cause notice dated 12.4.2019 issued by the Additional Commissioner of Central Goods and Service Tax, Ahmedabad. The notice demanded service tax of Rs. 1,13,47,313/- along with interest and penalty, based on the premise that the transaction between the petitioners and M/s. Arvind Limited was for services rendered and thus amenable to service tax.

2. Procedural Infraction and Manner of Issuance:
The petitioners contended that the notice was issued in violation of procedural norms, particularly the mandatory pre-show-cause notice consultation. The petitioners received the pre-show-cause notice consultation letter at 13.55 hours, calling them to appear before the respondent at 16.00 hours on the same day, which they argued was impractical and did not allow for effective representation.

3. Compliance with Circular Dated 10.3.2017:
The petitioners argued that the Circular dated 10.3.2017 mandates a pre-show-cause notice consultation to promote voluntary compliance and reduce the necessity of issuing show-cause notices. The petitioners cited Supreme Court decisions emphasizing that such circulars are binding on the authorities and must be adhered to.

4. Adequacy of Opportunity for Pre-Show-Cause Notice Consultation:
The court noted that the pre-show-cause notice consultation provided to the petitioners was illusory and an eye-wash, given the extremely short notice period. The court emphasized that the Circular required meaningful consultation, which was not provided in this case. The respondent's action was deemed arbitrary, high-handed, and in blatant violation of the mandatory procedure.

5. Timeliness of Issuance of Show-Cause Notice:
The respondents argued that the petitioners sought additional time to delay the process and let the demand period expire. However, the court found this argument unconvincing, noting that the respondents themselves delayed issuing the pre-show-cause notice consultation until the last moment. The court held that the pre-consultation notice and the show-cause notice issued on 12.4.2019 were in contravention of the Circular and could not be sustained.

Conclusion:
The court set aside the impugned show-cause notice dated 12.4.2019 on the grounds of inadequate opportunity for consultation. The parties were relegated to the stage prior to the issuance of the impugned notice, and the respondent was directed to issue a fresh pre-show-cause notice for consultation in accordance with the Circular dated 10.3.2017, providing the petitioners a reasonable opportunity for effective consultation. The petitioners were instructed to cooperate fully and not to raise the issue of limitation regarding the demand. The court also imposed a cost of Rs. 20,000 on the respondent for their arbitrary action, to be deposited within eight weeks, with half the amount payable to the petitioners and the other half to the Gujarat State Legal Services Authority. The petition was allowed accordingly.

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