Pre-Show Cause Notice consultation mandatory before issuance of SCN

The Gujarat High Court ruled that a pre-show cause notice consultation is a mandatory step before issuing a Show Cause Notice (SCN), particularly for demands exceeding Rs. 50 lacs. In this case, the petitioner was given insufficient notice for the consultation, leading to the SCN being issued on the same day. The court found this to be arbitrary and in contravention of the Master Circular, setting aside the SCN due to the lack of adequate consultation opportunity.

In Dharamshil Agencies v. Union of India [R/SLP No. 8255 of 2019 decided on July 23, 2021] Dharamshil Agencies challenged the legal validity of the Show Cause Notice dated April 12, 2019 ("SCN").

The facts of the case are that the Petitioner was issued a pre-show cause consultation notice letter dated April 12, 2019 consultation calling upon Petitioner to remain present on the same day at 14 hrs for pre-show cause notice consultation. Due to such short notice, the Petitioner submitted a letter requesting the Department for another dare for pre-show cause notice consultation. However, the Department issued the SCN on the same day i.e., April 12, 2019.

The Hon'ble Gujarat High Court noted that as per the settled legal position, the Circulars issued by the Board are binding to and have to be adhered to by the Department. In this regard Master Circular dated Match 10, 2017 was issued which stated that pre-show cause notice consultation is mandatory in cases involving the demands of duty above Rs.50 lacs.

Dismissed the Departments' contention that the period of recovery of 5 years was to expire on April 15, 2021 and stated that it was Department's responsibility to issue pre-show cause consultation notice immediately after the final audit report issued on February 28, 2019, and they waited till the last date on April 12, 2019.

Further, stated that illusionary pre-show cause consultation notice is not only arbitrary, but is in utter disregard and in contravention of the very object and purpose of the above Master Circular.

Set aside the SCN on the ground that Petitioner was not granted an adequate opportunity for the consultation prior to the issuance of SCN. Further, stated that the Petitioner would not be permitted to take unfair advantage on the ground that the demand made in the notice had now become time-barred in view of the statutory provisions.

Furthermore, directed the Department to issue fresh pre-show cause consultation notice.

Allowed the petition and asked the Department to deposit Rs. 20,000/- in the Court within eight weeks from today, out of which, the office shall pay Rs. 10,000/- to the Petitioner and remaining Rs. 10,000/- to Gujarat State Legal Services Authority.