Pre-Notice Consultation – Face Off Between Tax Payer and Department

Whatever the basis of the requirement, the issuance of a notice of cause of the exhibition is a condition before any requirement is raised by the department. Therefore, in order to put an end to unnecessary and avoidable issues, the “Tax Administration Reform Commission” under the chairmanship of Dr. Parthasarathi Shome recommended the concept of ‘Pre-Notice Consultation’ in the First Report of the Tax Administration Reform Commission (TARC). Considering the importance of pre-dispute consultation and compliance with the recommendation of the TARC report the government has introduced a pre-exhibition consultation before the final exhibition of a notice to reduce the burden of unnecessary litigation that will benefit both the department and the taxpayer. This article emphasises the pre-notice consultation – face between taxpayer and department.

What is pre – notice consultation?

If a taxpayer has not paid or has short paid the tax (GST) that is paid under law or has been erroneously reimbursed or misappropriated or misused Input Tax Credit (ITC), and in such cases, the relevant authority may issue a show notice under Section 73 (1) or Section 74 (1), as the case may be, of the CGST Act, 2017 (‘the Act’). In order to avoid tax evasion, the provisions of Section 73 shall apply. However, if the relevant authority is of the opinion that the taxpayer should turn to tax evasion, etc. by deliberately suppressing or misrepresenting the facts or by fraud, then the provisions of Section 74 and the extended extension period set out below shall be unnecessary. In the notice of cause of the exhibition, excluding the amount of tax or refund or ITC required, the receipt of interest and the imposition of a fine, if applicable, and the relevant legal provisions are also specified as legal requirements Regardless of what may be the basis for the requirement, the issuance of a notice of the use of the exhibition is a prerequisite before any requirement is raised and/or received from the taxpayer. The taxpayer may also choose an alternative remedy found under Section 73 (5) or Section 74 (5) of the Act if he or she wishes to avoid a lengthy, complex and expensive trial process.

Procedure for pre – notice consultation

Procedures (including forms) in respect of the issuance of a notice of reason for the exhibition under Section 73 or Section 74 of the Act are set out under Rule 142 of the CGST Rules, 2017 (‘Rules’). Vide Notification No. 49/2019-CT dated 09.10.2019, sub-rule (1A) is included in Rule 142 of the Regulations. As per sub-clause (1A), prior to the notice of the reason for the exhibition under Section 73 (1) or Section 74 (1) of the Act, the relevant authority is required to speak to the person concerned, details of any tax, interest and penalty as confirmed by the officer mentioned in Part A of Form GST DRC- 01A. Now let us discuss whether this is a requirement of sub-rule (1A), popularly known as ‘Pre-Notice Consultation’.

Whether a show-cause notice issued without adherence to the requirement of Pre-notice Consultation rendered illegal and invalid?

• The Delhi High Court has ruled that a pre-show consultation notice must be issued with authorization. The department is unable to withdraw this notification of the cause of the previous exhibition due to a voluntary statement issued by the inspector.
• Gulati Enterprises (Experimental) challenged the exhibition notice issued by the department stating that the pre-exhibition consultation was the result of the notice consultation in terms of the Customs and Excise Act (CGST) 142 (1A).
• The applicant’s attorney argued that the requirement to consult a notice prior to the exhibition in terms of the above rules to be read with Section 74 of the CGST Act, 2017 is mandatory.
• However, the income attorney argued that when the opposing exhibition notice dated 21.05.2020 was issued, Form GST DRC-01A was not implemented on the web portal. Also, the attorney pointed out the need to issue a notice of consultation for the pre-show cause as the authorized signatory of the applicant (the holding company) provided a voluntary statement before the official concerned.
• The court reviewed the facts and decisions on the same issues. Hold that it is mandatory to remove pre-show notification chats. The court also noted that CGST Rule 142 (1A) had changed from 15.10.2020, that is, after notice of the reason for the exhibition. The word ‘shall’ has been replaced by ‘may’.
• However, the court has not yet considered the amendment as notice of the reason for the exhibition was issued before 15.10.2020, that is, on 21.05.2020. Also, in dismissing the application, the court concluded that the voluntary statement could not include the legal notice, proposed under CGST 142 (1A).

Case laws

• Delhi High Court, in the case of Amadeus India Pvt. Ltd vs. Pr. The Commissioner, C.Ex, ST & CT – 2019- TIOL-1027-HC-DEL-ST, set aside the notice of cause of the exhibition given to the Examiner, recognizing that it was required in terms of section 5.0 of the Major Circular for Respondent to consult with the Applicant in consultation on pre-notice consultation.
• In addition, in the case of Back Office IT Solutions Pvt. Ltd. vs. OI & others The Hon’ble Delhi High Court  a similar view

Conclusion

The view on Pre Notice Consultation is very good but actually the department is following the same or different circulars and notices issued by the government are in vain due to the inability of departmental officials to follow the same.