The question will be analyzed with a Hypothetical Scenario mentioned hereinbelow: –
Presuming Mr A met with his friend named Mr X at a park situated at Green Park, New Delhi around evening. Generally, both were talking about life and suddenly this topic popped up about starting a business. After much deliberation both reach a common topic about investing in the venture of ICECREAM. MR. X thought that this is a sessional business but A told Mr X even though it is a sessional business however the revenue is good and he knows the technicality of the industry, therefore, it is the best move to invest in the business.
After a few months passed both applied for the licenses and completed all the formalities such as applying for the Trademark registration and making the logo and engaging a Company Secretary to incorporate the Limited Liability Partnership. Also, selected the place where the unit of the company will be situated which is near Dwarka location in the NCT of Delhi. Registered the company in the name of “Ljfvbn LLP” (hereinafter referred to as ‘Ljfvbn’). Also, as per the requirement have taken registration under the CGST Act read with IGST and DGST.
Fast forward two 2 years, on a Monday morning around 10 Am, Mr A was driving to work and while driving he receives a call from the office that a Show Cause Notice (SCN) is received from the department in the name of the Ljfvbn dated 12.03.2020 under Section 74 of the Central Goods and Service Tax Act, 2017 read with IGST and DGST. A got worried and asked his finance team to immediately look and try to resolve the issue.
The finance team after going through the contents and the provisions mentioned to Mr A that Rule 142 (1A) of the Central Goods and Service Tax Rule, 2017 is not complied with. While doing the same also stated that after consultation in case the reply which needs to be sent should consist of a Statement of Facts, Reply on Merits, and Prayer clause which is important for adjudication, however, that was not relevant then, still, for the sake of apprising the boss, the finance team mentioned the same and the same is selectively reproduced for sample purposes and not complete as follows in Italic: –
Statement of Facts
1.M/S Kick (hereinafter referred to as the Noticee) vide the aforesaid Show Cause Notice dated 12.09.2020 has been called to Show Cause to Mr. C working in the Department as a Commissioner, GST.
2. The Noticee is engaged in the business of manufacturing ICECREAM located at Dwarka, New Delhi. That Noticee is registered under has taken registration under the said category vide registration No XXXXXXXXXXX. A copy of the registration is attached and marked as Annexure A.
Reply On Merits
Say that the allegations leveled against the Noticee in the SCN are denied and are not tenable for the following submissions which are independent and without prejudice to one another.
Now for the proper analysis, I will deliberate on relevant Rules and Sections provided under the Act before the Amendment and after the Amendment.
Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised by reason of fraud or any wilful misstatement or suppression of facts
(1) Where it appears to the proper officer that any tax has not been paid or short paid or erroneously refunded or where input tax credit has been wrongly availed or utilised by reason of fraud, or any wilful-misstatement or suppression of facts to evade tax, he shall serve notice on the person chargeable with tax which has not been so paid or which has been so short paid or to whom the refund has erroneously been made, or who has wrongly availed or utlilised input tax credit, requiring him to show cause as to why he should not pay the amount specified in the notice along with interest payable thereon under section 50 and penalty equivalent to the tax specified in the notice.
(2) The proper officer shall issue notice under sub-section (1) at least six months prior to the time limit specified in sub-section (10) for issuance of order
Before Amendment in Rule 142 [[IA] i.e 15.10.2020
Rule I42 Notice and order for demand of amounts payable under the Act
(1) The proper officer shall serve, along with the —-
(a) notice issued under section 52 or section 73 or section 74 or section 76 or section 122 or section 123 or section 124 or section 125 or section 127 or section 130, a summary thereof electronically in FORM GST DRC-01
(b) statement under sub-section (3) of section 73 or sub-section (3) of section 74, a summary thereof electronically in FORM GST DRC-02 specifying therein the details of the amount payable
[(IA] The proper officer shall, before service of notice to the person chargeable with tax, interest, and penalty, under sub-section (1) of Section 73 or sub-section (1) of Section 74, as the case may be, shall communicate the details of any tax, interest, and penalty as ascertained by the said officer, in Part A of FORM GST DRC-01A.]
After Amendment in Rule 142 [IA] i.e on 15.10.2020
The proper officer may before service of notice to the person chargeable to tax, interest and penalty, under sub-section (1) of Section 73 or sub-section (1) of Section 74, as the case may be, communicate the details of any tax, interest and penalty as ascertained by the said officer, in Part A of FORM GST DRC-01A.”
After the Amendment, the word ‘Shall’ is replaced with ‘May’ in Rule 142 [1A] wherein it is not mandatory to send the pre-consultation notice. However, it is pertinent to note that the said Amendment was brought on and after the 15.10.2020 and the same cannot be read retrospectively.
In the given facts and circumstances, the department should have sent the pre-consultation notice as provided under Rule 142 [IA] of Central Goods and Service Tax Rules 2017 read with Section 74 of CGST, as the SCN is issued before the amendment i.e., 12.03.2020. The same should be sent in Form GST DRC-01A.
For a moment presume without admitting that Mr. A Partner of Ljfvbn went to the department for discussion/ voluntary statement, will that make the condition of the issuing pre-show cause stipulated under before the amendment Rule 142 [IA} redundant?
A somewhat similar question on the line of “voluntary statement” and “pre-consultation notice” arose in the case of Omaxe New Chandigarh Developers Pvt. Ltd V. Union of India & Ors wherein the Court in the para-No. 3.4. has observed and the same is reproduced verbatim; –
“We are of the view that “voluntary statement’ recorded before the Senior Intelligence officer cannot constitute pre-show cause notice consultation as envisaged in the paragraph 5 of the 2017 Master Circular. Consultation entails discussion and deliberation. There is back and forth between parties concerned with the consultative process, leading to, metaphorically speaking, often, separation of wheat from the chaff
Therefore, keeping in view the above-cited judgment the pre-consultation notice is a mandatory requirement even though the Noticee has provided the voluntary statement before the amendment.
Another judgment titled Back-office IT Solutions Pvt. Ltd vs Union of India & Ors 2021 SCC Online Del 2742 wherein the Delhi High Court in para 17 has observed the 2017 Master circular clause 5 the same is reproduced verbatim;-
5.0 Consulation with the notice before the issue of Show Cause Notice: Board has made pre show cause notice consultation by the Principal Commissioner/Commissioner prior to issue of show cause notice in case involving demand of duty above Rs 50 Lakhs (except for preventive/offence related SCN’s) mandatory vide instruction issued from F. No 1080/09/DLA/MISC/15, dated 21st Decemeber 2015. Such consulation shall be done by the adjudicating authority with the assessee concerned. This is an important step towards trade facilitation and promoting voluntary compliance and to reduce the necessity of issuing show casue notice.
Based on the above discussion, it is imperative to send the pre-consultation notice in terms of the Judgment discussed hereinabove tiled as Omaxe New Chandigarh and Back office IT. Also, Rule 142 (IA) is to be read along with Section 74 of the CGST Act, 2017. In the present hypothetical question, the SCN was issued before the amendment took place i.e 12.03.2020. Therefore keeping in view the above facts and circumstances, it is quite essential to send the pre-consultation notice and if the same is not sent the remedy to approach the Jurisdictional Courts lies with Mr.A after due consultation and keeping in the view of the facts and circumstances.
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 Deepanshu Arora, Holds a degree in B.Com from University of Delhi and Law
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