2022 (10) TMI 334 - HC - Customs

Validity of SCN - case of petitioner is that SCN could only have been issued after pre-show cause notice consultation - Section 28(1) (a) of the Customs Act, 1962 - HELD THAT - In the facts of this case, it is not in dispute, that the pre-consultation notice is dated 14.12.2021, and therefore, 15 days would have expired only on 29.12.2021 - Admittedly, the SCN was issued prior to the expiry of the statutory time-frame. There has been a violation of not only the safeguard provided in the proviso appended to Section 28(1)(a) of the 1962 Act requiring holding pre-notice consultation with the person chargeable with tax and interest but also infraction of the right of such person, to be accorded, in the very least, 15 days under sub-regulation (2) of Regulation 3 of the 2018 Regulations to respond to any such initiative of holding such consultation - the importance of pre-show cause notice consultation is exemplified in the provisions of sub-regulation (4) of Regulation 3. As noticed in the order dated 29.08.2022, a plain perusal of the said provision would show, that it is quite possible, that after consultation, the concerned authority may decide to drop the proceedings if it is satisfied with explanation it receives during such process. The pre-show cause notice consultation, as provided, both in the 1962 Act as well as the 2018 Regulations, is necessary, as the object of having such provisions is to stem the tide of litigation between the revenue and assessee - the respondent no.2/revenue has failed to adhere to this provision, is quite evident in the instant case. Petition disposed off.

Summary

Issues:
Violation of statutory provisions in issuance of show cause notice and order-in-original.

Analysis:
The petitioner challenged the Order-in-Original dated 25.05.2022, contending that it was based on a show cause notice (SCN) that did not adhere to legal requirements. The petitioner argued that the SCN was issued without the mandatory pre-show cause notice consultation, as prescribed in Section 28(1)(a) of the Customs Act, 1962 and Regulation 3 of the Pre-Notice Consultation Regulations, 2018. The petitioner disputed receiving the pre-consultation notice dated 14.12.2021, emphasizing that even if received, it did not validate the subsequent SCN dated 22.12.2021. The Court noted the obligation on the revenue to serve a notice for pre-consultation, allowing 15 days for written submissions and an option for an in-person hearing. The Court found a legal lacuna in the impugned order due to the premature issuance of the SCN before the statutory timeframe for consultation had lapsed.

The respondent no.2/revenue argued that a consultative letter dated 28.06.2021 was served on the petitioner, followed by a response from the petitioner. However, the petitioner contended that this communication did not comply with the provisions of the 1962 Act and the 2018 Regulations. The Court emphasized the importance of pre-show cause notice consultation to prevent unnecessary litigation and ensure procedural fairness. It highlighted the violation of statutory safeguards in the issuance of the SCN before the expiration of the mandated consultation period, indicating a breach of natural justice principles.

The Court found two main flaws in the impugned order-in-original: non-compliance with the mandatory pre-notice consultation requirement and failure to follow the prescribed procedure for consultation as per the regulations. It noted that the premature issuance of the SCN infringed upon the rights of the petitioner to respond adequately within the stipulated timeframe. The Court set aside the order-in-original dated 25.05.2022, allowing the respondent to initiate proceedings de novo in accordance with the law. The respondent was directed to file a duly notarized counter-affidavit, and costs were awarded to the petitioner as per the prevailing rules.