2022 (5) TMI 1137 - HC - GST

GST Rule 142(1A) pre-show cause notice consultation mandatory before October 2020 amendment voluntary statement insufficient

Delhi HC ruled that pre-show cause notice consultation under Rule 142(1A) of Central GST Rules 2017 was mandatory before the rule's amendment on ... Pre-show cause notice consultation - mandatory nature of Rule 142(1A) (unamended) - FORM GST DRC-01A requirement - voluntary statement not substitute for statutory consultation - show cause notice under Section 74 of the CGST ActPre-show cause notice consultation - mandatory nature of Rule 142(1A) (unamended) - FORM GST DRC-01A requirement - show cause notice under Section 74 of the CGST Act - Pre-show cause notice consultation under the unamended Rule 142(1A) was mandatory and failure to issue it vitiates the subsequently issued show cause notice. - HELD THAT: - The Court noted that sub rule (1A) of Rule 142, as it stood prior to amendment with effect from 15.10.2020, used mandatory language ('shall') requiring the proper officer to communicate details in Part A of FORM GST DRC 01A before service of notice under Section 73(1) or Section 74(1). The Court relied upon earlier coordinate-bench decisions interpreting similar consultative requirements in the master circular and concluded that the unamended Rule 142(1A) imposed a mandatory pre show cause consultation obligation. Applying that determinative principle to the facts, the Court held that the impugned show cause notice dated 21.05.2020, having been issued without the mandatory pre show cause consultation, was unlawful and set it aside, while permitting the revenue to proceed afresh after issuing the prescribed pre show cause consultation notice. [Paras 9, 10, 13]Impugned show cause notice set aside for failure to comply with the mandatory pre show cause consultation requirement under the unamended Rule 142(1A); revenue may issue the prescribed consultation notice and take further steps as per law.FORM GST DRC-01A requirement - pre-show cause notice consultation - Non activation of the statutory form on the revenue's web portal does not excuse failure to issue the pre show cause consultation notice. - HELD THAT: - The Court rejected the respondents' contention that absence of activation of the FORM GST DRC 01A on the web portal absolved them from issuing the pre show cause consultation notice. The Court observed that the statutory form could have been served manually and that failure to activate the portal did not relieve the revenue of the mandatory obligation imposed by the unamended Rule 142(1A). [Paras 5, 11]Non activation of the form on the web portal is not a valid excuse for not issuing the mandatory pre show cause consultation notice.Voluntary statement not substitute for statutory consultation - pre-show cause notice consultation - A voluntary statement recorded from the authorised signatory cannot substitute for the statutory pre show cause consultation contemplated by Rule 142(1A). - HELD THAT: - The Court followed recent coordinate bench precedents holding that voluntary statements are one way communications and do not constitute the consultative process envisaged by the statutory provision or the master circular. Consultation requires discussion and deliberation; therefore, the respondents' reliance on the voluntary statement of the authorised signatory did not satisfy the mandatory pre show cause consultation requirement and could not cure the defect in issuance of the show cause notice. [Paras 6, 11, 12]Voluntary statement by the authorised signatory does not fulfil the statutory requirement of pre show cause consultation; it cannot validate the impugned notice.Final Conclusion: Writ petition allowed; the show cause notice dated 21.05.2020 set aside for non compliance with the mandatory pre show cause consultation under the unamended Rule 142(1A). The revenue is at liberty to issue the prescribed pre show cause consultation notice (FORM GST DRC 01A) and proceed thereafter in accordance with law. Issues:Violation of mandatory pre-show cause notice consultation requirement under Rule 142(1A) of the Central Goods and Service Tax Rules, 2017.Analysis:The petitioner challenged a show cause notice issued by the revenue department for tax evasion. The petitioner argued that the notice did not comply with the mandatory pre-show cause notice consultation requirement under Rule 142(1A) of the CGST Act, 2017. The petitioner's counsel contended that the consultation requirement was essential and had to be followed, as per the statutory provisions. The respondent's counsel argued that the statutory form required for the consultation was not activated on the web portal, which prevented them from issuing the notice. However, the court held that this argument was not sufficient to waive the consultation requirement. The court referred to a previous judgment that emphasized the mandatory nature of pre-show cause notice consultation.The court further discussed the significance of the unamended Rule 142(1A) before its amendment in October 2020. It was highlighted that the unamended rule mandated pre-show cause notice consultation. The court rejected the argument that a voluntary statement made by the petitioner's authorized signatory could substitute the formal consultation notice. This argument was previously rejected in another case, where the court emphasized that voluntary statements do not fulfill the consultative process required by the law. The court concluded that a voluntary statement could not replace the statutory notice as contemplated under Rule 142(1A) of the CGST Rules.As a result, the court allowed the writ petition, setting aside the impugned show cause notice dated 21.05.2020. However, the court clarified that the revenue department could issue a proper pre-show cause consultation notice in the prescribed form to proceed lawfully. The judgment highlighted the importance of following statutory procedures and ensuring compliance with legal requirements in tax matters.