Summary: The Bombay High Court, in FSM Education Pvt Ltd v. Union of India [Writ Petition (L) No. 28229 of 2024 dated January 21, 2025], ruled that a Show Cause Notice (SCN) cannot be issued without first considering the reply to a pre-consultation notice. FSM Education Pvt Ltd received a pre-consultation notice on July 11, 2024, but due to missing documents, it requested additional time to respond. Despite submitting its reply on July 29, 2024, the authorities issued an SCN the following day without considering the response. The company challenged this action, arguing that the SCN was premature. The High Court ruled that while hearings on the SCN could proceed, no adjudication order should be passed until further notice. The ruling aligns with CBIC’s mandate that pre-consultation notices are required in cases exceeding ₹50 lakhs, barring fraud or evasion. Precedents from the Patna High Court in Krishangi Construction Pvt. Ltd and Ramnath Prasad reinforced that such consultations are essential to uphold procedural fairness. The decision highlights the importance of adhering to due process in tax disputes, ensuring that replies to pre-consultation notices are duly considered before further action is taken.
Facts:
M/s FSM Education Pvt Ltd (“the Petitioner”) were issued a pre-consultation notice in FORM GST DRC-01A on July 11, 2024. The Petitioner was called upon to file a reply by July 22, 2024. Since the pre-consultation notice referred to a calculation sheet which was not annexed to the said notice, the Petitioner sought a copy of the same via e-mail dated July 13, 2024. Thereafter, the Revenue Authority (“the Respondent”) forwarded the sheet to the Petitioner on July 19, 2024 after receipt of which the Petitioner sought 10 days’ time to reply to the pre- consultation notice. However, the Respondent did not reply to this mail. Accordingly, the Petitioner e-mailed its reply on July 29, 2024 i.e. the 10th day and furnished hard copy to the Respondent on July 30, 2024. Despite receipt of the reply, the Respondent issued a SCN dated July 30, 2024 (“the Impugned SCN”) to the Petitioner. The Petitioner contended that when the reply to the pre- consultation notice was already with the Respondent, then the SCN should not have been issued without taking into consideration their reply.
Aggrieved by the issuance of the SCN without considering the reply filed by the Petitioner, the present writ petition was filed.
Issue:
Whether SCN can be issued without considering the reply to pre-consultation notice?
Held:
The Hon’ble Andhra Pradesh High Court in Writ Petition No. 28229 of 2024 held as under:
- Directed that, though hearing on the Impugned SCN can proceed, the Respondent shall not pass any adjudication order on the Impugned SCN until further orders.
Our Comments:
The Central Board of Indirect Taxes and Customs (“the CBIC”) introduced the concept of ‘pre-consultation notice’ through its Instruction No. 1080/09/DLA/MIS/15 dated December 21, 2015. This made ‘Pre-notice Consultation’ in mandatory in all cases involving a demand of Rs. 50 lakhs or more, excluding preventive/offence-related SCN. Subsequently, CBIC reiterated this mandate through Master Circular No. 1053/2/2017-CX dated March 10, 2017.
Further, under Notification No. 49/2019-CT dated October 09, 2019, a sub-rule (1A) was added to Rule 142 of the CGST Rules. This rule required the proper officer, before issuing a show cause notice under Section 73(1) or Section 74(1) of the Act, to communicate the details of any tax, interest, and penalty determined by the officer in Part-A of Form GST DRC-01A. However, with CBIC Notification No. 79/2020-CT dated November 15, 2020, the word “shall” be replaced with “may,” thus making the pre-consultation process discretionary at the officer’s discretion.
Additionally, Circular No.1076/02/2020-CX dated 19.11.2020, clarified that “Pre-show cause notice consultation with assessee, in cases where the duty demand exceeds Rs. 50 lakhs (except for preventive/offence-related SCNs), is mandatory. Circular No. 1079/03/2021-CX, issued on November 11, 2021, further clarified that the exclusion from pre-consultation notice is case-specific, not formation-specific. The Circular reiterated that pre-consultation notice is not mandatory for cases falling under the Central Excise Act, 1944 or Chapter V of the Finance Act, 1994, in cases of duties or taxes that were not levied or paid, or erroneously refunded due to:
of
- fraud/ collusion/ wilful mis-statement/ suppression of facts, or
- contravention of the Central Excise Act, 1944 or Chapter V of the Finance Act, 1994 or the rules made there under with the intent to evade payment of duties or taxes.
In the case of M/S Krishangi Construction Pvt. Ltd vs The State of Bihar [Writ Petition No. 19564 of 2021 dated January 11, 2024], the Patna High Court set aside the SCN, not on merits, but only on no proper opportunity having been given to the petitioner for reply and consultation to the pre-consultation show-cause notice issued by the authorities. The petitioner was also directed to file a detailed reply to the pre consultation notice within a period of three weeks and also to appear before the authority for hearing as and when fixed by the Authority either on virtual mode or on the physical mode as requested by the Petitioner. The Patna High Court reiterated its stance and held in the case of Ramnath Prasad v. Principal Commissioner of CGST and Central Excise, Patna [Writ Petition No. 10644 of 2024 dated January 28, 2025], that as per the Circulars issued by the CBIC, a pre-show cause notice consultation would be mandatory in certain cases except for the cases booked under fraud, collusion, wilful mis-statement, suppression of facts, evasion of tax etc.
In light of the above-mentioned legal provisions and precedents, the order of the Bombay High Court that the SCN can only be adjudicated and no final order can be passed until further orders of the Court as the Assessee’s reply to the pre-consultation notice was not considered is in right direction and reinforces the significance of issuing pre-consultation notices before issuing show-cause notices in such matters.
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