2022 (8) TMI 1317 - HC - Service Tax

Violation of principles of natural justice - pre-show cause notice consultation - notice based on audit observation - insufficient time to respond - HELD THAT - In the instant case, the respondent-writ petitioner did not have sufficient time to react to produce the necessary documents before the concerned authority for a pre-show cause notice consultation. The view of the learned Single Judge that there has been violation of principles of natural justice is agreed upon - however, quashing of the said show cause notice-cum-demand would not be necessary in the facts and circumstances of the case and if the order passed in the writ petition is slightly modified, it will not only protect the interest of the assessee but also the interest of the revenue. The instant appeal stands partly allowed and the order and direction issued by the learned Single Judge quashing the show cause notice cum demand letter dated 11.10. 2021 is set aside and the contents of the show cause notice shall be treated as additional information in addition to audit observation dated 01.10.2021. The appellant/assessing officer is directed to fix a date for personal hearing on which date the case will be discussed with the respondent assessee and the assessing officer shall proceed in accordance with the law. Till such time no coercive action shall be initiated against the respondent-writ petitioner.

Summary

Issues:
Violation of principles of natural justice in issuing show cause notice without pre-consultation. Quashing of show cause notice and demand letter. Applicability of circulars for pre-consultation in cases of demands over Rs.50,00,000. Modification of the order to protect interests of both assessee and revenue. Submission of written objections by respondent-writ petitioner within 15 days. Consideration of documents produced during personal hearing. Disposal of connected application.

Analysis:
The High Court of Calcutta heard an intra-Court appeal filed by the revenue challenging an order passed in WPA 17451 of 2021. The respondent-petitioner had challenged a show cause notice-cum-demand issued by the CGST, Kolkata Audit-I, citing a serious violation of natural justice principles due to lack of pre-show cause notice consultation. The respondent-petitioner had requested time to produce necessary details and documents, but the show cause notice was issued without responding to this request. The Single Bench quashed the show cause notice but allowed the department to issue a fresh notice. Pre-consultation is deemed mandatory for demands exceeding Rs.50,00,000, as per circulars issued by the department to facilitate better understanding of cases and potentially prevent further proceedings.

The Court acknowledged the lack of sufficient time for the respondent-writ petitioner to react and produce necessary documents before the authority for pre-show cause notice consultation, agreeing that there was a violation of natural justice principles. However, the Court deemed quashing the show cause notice unnecessary in this case. The appeal was partly allowed, setting aside the order quashing the show cause notice and treating its contents as additional information to the audit observation. The assessing officer was directed to schedule a personal hearing with the respondent assessee, during which the case would be discussed, and proceedings would continue in accordance with the law. No coercive action was to be taken against the respondent-writ petitioner until the personal hearing was completed.

The respondent-writ petitioner was instructed to submit their written objections to the audit observation and show cause notice within 15 days. The assessing officer was required to consider any documents presented during the personal hearing and proceed based on merits and the law within 10 days of the hearing's conclusion. The Court clarified that the respondent-assessee could not raise the issue of limitation due to the partial allowance of the appeal by the appellant department. Consequently, the connected application was disposed of as per the Court's directives.