2022 (5) TMI 13 - HC - Service Tax

Violation of principles of Natural Justice - procedure of pre-consultation before issuance of show cause notice has not been adhered to - HELD THAT - The process of pre-consultation as done in the instant case appears to have not been a statutory procedure but a procedure carved out by the Central Board with a view to promote compliance and to reduce the necessity for issuing the show cause notice. The object behind such process can be culled out from the master circular issued by the Central Board dated 10th March, 2017. The record of the proceedings has been minuted on 13th October, 2016. Though the learned Advocate for the appellant would contend that the record of pre-show cause notice consultation meeting held on 13th October, 2016, is not comprehensive, it indicates the contentions, which were advanced by the appellant. The net result is thus if the Central Board has evolved a procedure to balance the interest of the assessee as well as the revenue, such procedure should be given due regard. This is precisely the reason the Central Board in its master circular dated 10th March, 2017 has directed that the authority, who has issued the pre-consultation notice, should be the authority, who shall issue the show cause notice and adjudicate the same in cases where pre-consultation does not resolve the dispute. That apart, it is also noted that in the show cause notice dated 14th October, 2016 issued by the Audit- II Commissionerate, there is no reference to the pre-consultation process. This is incorrect as when the department has evolved a procedure, such procedure should be a meaningful procedure. At least a brief discussion is required to be made as the appellant was invited to participate in the pre-consultation before issuance of the show cause notice with a view towards trade facilitation and promoting voluntary compliance and to reduce the necessity of issuing the show cause notice in terms of the instruction issued by the Board dated 13th October, 2016. The matter is remanded to the file of the Commissioner, Central Excise Service Tax, Bolpur Commissionerate, West Bengal with a direction to issue show cause notice to the appellant within 15 days from the date of receipt of the server of this judgment and order wherein brief discussion with regard to the pre-consultation procedure, which was adopted shall be given - Appeal allowed by way of remand.

Summary

Issues Involved:
1. Adherence to pre-consultation procedure before issuance of show cause notice.
2. Authority issuing show cause notice not in alignment with pre-consultation instructions.
3. Lack of reference to pre-consultation in the show cause notice.
4. Compliance with procedures outlined by the Central Board.
5. Decision on remanding the matter for fresh show cause notice issuance.

Detailed Analysis:

Adherence to Pre-Consultation Procedure:
The appellant challenged an order directing them to respond to a show cause notice, arguing that pre-consultation procedures were not followed as per instructions from the Central Board of Excise and Customs. The Court noted the appellant's participation in the consultation, submission of documents, and made submissions during the pre-show cause notice consultation. The Court emphasized the importance of following the procedure to promote compliance and reduce the necessity for issuing show cause notices.

Authority Alignment with Pre-Consultation Instructions:
The Court highlighted that the authority issuing the show cause notice was different from the one who invited the appellant for pre-consultation, contravening the Central Board's instructions. The Court stressed that the authority conducting the pre-consultation should also issue the show cause notice and adjudicate the matter if the pre-consultation does not resolve the dispute, following the principle that the one who hears should decide.

Lack of Reference to Pre-Consultation in Show Cause Notice:
The show cause notice issued by the Audit Commissionerate did not mention the pre-consultation process, which the Court deemed incorrect. The Court emphasized the need for at least a brief discussion in the show cause notice regarding the pre-consultation to ensure a meaningful procedure in line with the Board's instructions.

Compliance with Central Board Procedures:
The Court reiterated the importance of adhering to the procedures outlined by the Central Board to balance the interests of the assessee and the revenue. It noted that the pre-consultation process was aimed at trade facilitation, promoting voluntary compliance, and reducing the necessity for issuing show cause notices.

Decision on Remanding for Fresh Show Cause Notice:
The Court allowed the appeal, set aside the previous order, quashed the show cause notice, and remanded the matter to the Commissioner of Central Excise to issue a fresh show cause notice within a specified timeline. The Court directed a brief discussion on the pre-consultation procedure in the new notice, allowing the appellant to respond and be afforded a personal hearing before a reasoned order is passed.

This detailed analysis covers the key issues addressed in the judgment, emphasizing the importance of procedural compliance and fairness in adjudication processes.